The impact of voluntary disclosure on a firm’s investment policy

Abstract

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.

A Decision Rule for Determining the Optimal Transplant Listing Window for Patients With a Fontan Physiology

“…A similar approach has been applied previously in the context of health technology adoption. 17 The approach has also been applied in a wide range of other contexts to problems in, for example, corporate finance, 18 market microstructure, 19 migration, 20 and the environment. 21 The idea is that the cardiologist has a checklist of symptoms (which she determines) against which the clinical status of an individual patient is checked.…”

Investment in high-frequency trading technology: A real options approach

“…Given this optimal timing strategy, I then compare the equilibrium level of fast trading in the market with the welfare-maximising socially optimal level. While optimal investment timing has been well-developed in the operations research literature through its application to many different types of problems (see, for example, Banerjee et al [1]; Battauz et al [3]; Munoz et al [20]; Delaney and Thijssen [8]), it is the first application of the approach in a HFT environment.…”

The dampening effect of iceberg orders on small traders’ welfare

“…The former paper is concerned with a capital budgeting decision and focuses on a stand-alone option, while the latter considers how the exercise strategy of some investment option is influenced by the option to voluntarily disclose the investment return at some future date. While this paper is similar to Delaney and Thijssen (2015) in the sense that they are both compound option problems, in the latter paper, the decision variable is the same for both inter-related options whereas in this paper there is a separate decision variable for the buy and sell strategies; one representing the likely presence of hidden depth at a particular price, and one representing the likely market demand for the asset in the future. This implies that the approach to solving for the optimisation problems in this paper differs to quite a large extent to the approach needed in Delaney and Thijssen (2015).…”

“…While this paper is similar to Delaney and Thijssen (2015) in the sense that they are both compound option problems, in the latter paper, the decision variable is the same for both inter-related options whereas in this paper there is a separate decision variable for the buy and sell strategies; one representing the likely presence of hidden depth at a particular price, and one representing the likely market demand for the asset in the future. This implies that the approach to solving for the optimisation problems in this paper differs to quite a large extent to the approach needed in Delaney and Thijssen (2015). In particular, we need to consider the fact that the two variables in this paper must not be totally independent from each other, which adds another dimension to the optimisation approach which is absent in other models.…”

“…Technically, it is closely related the models of information flow in Thijssen et al (2004) and Delaney and Thijssen (2015). The former paper is concerned with a capital budgeting decision and focuses on a stand-alone option, while the latter considers how the exercise strategy of some investment option is influenced by the option to voluntarily disclose the investment return at some future date.…”