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Valuing Voluntary Disclosure using a Real Options Approach

Author

Listed:
  • Laura Delaney
  • Jacco J.J. Thijssen

Abstract

This paper outlines a real options approach to valuing those announcements which are made by firms outside their legal requirements. From the firm's perspective, information is disclosed only if the manager of the firm is sufficiently certain that the market response to the announcement will have a positive impact on the value of the firm. When debt financing is possible it is found that the manager adopts a more transparent disclosure policy, thus violating the Modigliani-Miller theorem on irrelevance of capital structure on firm value.

Suggested Citation

  • Laura Delaney & Jacco J.J. Thijssen, "undated". "Valuing Voluntary Disclosure using a Real Options Approach," Discussion Papers 11/13, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:11/13
    as

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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/2011/1113.pdf
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    References listed on IDEAS

    as
    1. Thijssen, Jacco J. J. & Huisman, Kuno J. M. & Kort, Peter M., 2004. "The effect of information streams on capital budgeting decisions," European Journal of Operational Research, Elsevier, vol. 157(3), pages 759-774, September.
    2. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    3. Tarun Sabarwal, 2005. "The non-neutrality of debt in investment timing: a new NPV rule," Annals of Finance, Springer, vol. 1(4), pages 433-445, October.
    4. Admati, Anat R & Pfleiderer, Paul, 2000. "Forcing Firms to Talk: Financial Disclosure Regulation and Externalities," The Review of Financial Studies, Society for Financial Studies, vol. 13(3), pages 479-519.
    5. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    6. Suijs, J.P.M., 2007. "Voluntary disclosure of information when firms are uncertain of investor response," Other publications TiSEM dc14208d-199b-4700-9795-5, Tilburg University, School of Economics and Management.
    7. Mani Subramani & Eric Walden, 2001. "The Impact of E-Commerce Announcements on the Market Value of Firms," Information Systems Research, INFORMS, vol. 12(2), pages 135-154, June.
    8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    9. Graham, John R. & Harvey, Campbell R. & Rajgopal, Shiva, 2005. "The economic implications of corporate financial reporting," Journal of Accounting and Economics, Elsevier, vol. 40(1-3), pages 3-73, December.
    10. Suijs, Jeroen, 2007. "Voluntary disclosure of information when firms are uncertain of investor response," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 391-410, July.
    11. Dempster, Anna, 0. "Valuing Announcement Options," European Management Journal, Elsevier, vol. 24(2-3), pages 117-127, April.
    12. Sarkar, Sudipto, 2000. "On the investment-uncertainty relationship in a real options model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 219-225, February.
    13. Phillip C. Stocken, 2000. "Credibility of Voluntary Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 359-374, Summer.
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    Cited by:

    1. Waters, James, 2015. "Optimal design and consequences of financial disclosure regulation: a real options approach," MPRA Paper 63369, University Library of Munich, Germany.
    2. repec:cty:dpaper:8121 is not listed on IDEAS

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    More about this item

    Keywords

    Voluntary Disclosure; Real Options; Modigliani-Miller Theorem.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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