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The Impact of Voluntary Disclosure on a Firm's Investment Policy

Delaney, L. & Thijssen, J. (2015). The Impact of Voluntary Disclosure on a Firm's Investment Policy. European Journal of Operational Research, 242(1), pp. 232-242. doi: 10.1016/j.ejor.2014.09.047


In this paper we provide a model which describes how voluntary disclosure impacts on the timing of a firm’s investment decisions. A manager chooses a time to invest in a project and a time to disclose the investment return in order to maximise his monetary payoff. We assume that this payoff is linked to the level of the firm’s stock price. Prior to investing, the profitability of the project and the market reaction to the disclosure of the investment return are uncertain, but the manager receives signals at random points in time which assist in resolving some of this uncertainty. We find that a manager whose objective can only be achieved through voluntarily disclosing the return is motivated to invest at a time that would be sub-optimal for an identical manager with a profit maximising objective.

Publication Type: Article
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, Volume 242, Issue 1, 1 April 2015, Pages 232–242,
Publisher Keywords: Economics, Real options, Voluntary disclosure, Sub-optimal investment
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Policy & Global Affairs > Economics
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