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

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  • Mahmud Hossain
  • Kamran Ahmed
  • Jayne M. Godfrey

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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  • Mahmud Hossain & Kamran Ahmed & Jayne M. Godfrey, 2005. "Investment Opportunity Set and Voluntary Disclosure of Prospective Information: A Simultaneous Equations Approach," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5‐6), pages 871-907, June.
    • Handle: RePEc:bla:jbfnac:v:32:y:2005:i:5-6:p:871-907
    DOI: 10.1111/j.0306-686X.2005.00616.x
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    6. Chiara Mio & Pier Luigi Marchini & Alice Medioli, 2020. "Forward‐looking information in integrated reports: Insights from “best in class”," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(5), pages 2212-2224, September.
    7. Emmanuel Mensah & Christopher Boachie, 2023. "Analysis of the determinants of corporate governance quality: evidence from sub-Saharan Africa," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(4), pages 431-450, December.
    8. Meng, Yijun & Clements, Michael P. & Padgett, Carol, 2018. "Independent directors, information costs and foreign ownership in Chinese companies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 139-157.
    9. Al-Hadi, Ahmed & Taylor, Grantley & Hossain, Mahmud, 2015. "Disaggregation, auditor conservatism and implied cost of equity capital: An international evidence from the GCC," Journal of Multinational Financial Management, Elsevier, vol. 29(C), pages 66-98.
    10. Stropnik Neca & Korošec Bojana & Tominc Polona, 2017. "The Relationship Between the Intellectual Capital Disclosure and Cost of Debt Capital – A Case of Slovenian Private Audited Organisations," Naše gospodarstvo/Our economy, Sciendo, vol. 63(4), pages 3-16, December.
    11. Elisa Menicucci & Guido Paolucci, 2021. "Forward-Looking Intellectual Capital Information in Integrated Reporting: An Empirical Analysis," International Journal of Business and Management, Canadian Center of Science and Education, vol. 14(8), pages 167-167, July.
    12. Madonna O’Sullivan & Majella Percy & Jenny Stewart, 2008. "Australian evidence on corporate governance attributes and their association with forward-looking information in the annual report," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(1), pages 5-35, March.
    13. Braune, Eric & Sahut, Jean-Michel & Teulon, Fréderic, 2020. "Intangible capital, governance and financial performance," Technological Forecasting and Social Change, Elsevier, vol. 154(C).
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    15. Tiago Miguel Sá & Elisabete Duarte Neves & Cristina Gonçalves Góis, 2017. "The influence of corporate governance on changes in risk following the global financial crisis: evidence from the Portuguese stock market," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 21(4), pages 841-878, December.
    16. Haiyan Jiang & Ahsan Habib, 2009. "The impact of different types of ownership concentration on annual report voluntary disclosures in New Zealand," Accounting Research Journal, Emerald Group Publishing Limited, vol. 22(3), pages 275-304, November.
    17. Samah Rebai Azouz, 2011. "Les motivations de l'inscription des investissements en R&D à l'actif : Divulgation volontaire d'informations ou gestion des résultats ?," Post-Print hal-00650564, HAL.
    18. Anthony P Cannizzaro & Robert J Weiner, 2018. "State ownership and transparency in foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(2), pages 172-195, February.

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