Investment Opportunity Set and Voluntary Disclosure of Prospective Information: A Simultaneous Equations Approach

Mahmud Hossain · Kamran Ahmed · Jayne M. Godfrey

93 citations0/0 files storedJournal of Business Finance &amp Accounting

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Auditing, Earnings Management, Governance Financial Markets and Investment Strategies Corporate Finance and Governance

Abstract

Abstract: This paper examines empirically the relationship between the level of disclosure of prospective information and the investment opportunity set for firms in New Zealand. Using a systems (two‐stage least squares) approach that explicitly controls for potential endogeneity between disclosure and IOS, we find that the level of prospective information disclosure is significantly and positively related to IOS in both specifications in our simultaneous analysis. Further, we document that prospective information disclosure is positively related to firm size and new security offerings, and is not related to inside ownership and firm profitability. IOS is positively impacted by a firm's investments in fixed assets and its profitability. Finally, we find that forward looking disclosure levels are positively related to the proportion of outside directors on the board and negatively related to barriers to entry, but these findings are not robust across alternative model specifications.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1984Corporate financing and investment decisions when firms have information that investors do not have 1978Specification Tests in Econometrics 1977Determinants of corporate borrowing 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 1988Management ownership and market valuation 2000Investor protection and corporate governance 1984Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have

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2017State ownership and transparency in foreign direct investment 2010Determinants of sell‐side financial analysts’ use of non‐financial information 2014The association between disclosure of forward-looking information and corporate governance mechanisms 2009Disclosure indices design: does it make a difference?2010Comprehensive Disclosure of Compensation and Firm Value: The Case of Policy Reforms in an Emerging Market

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