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

29 Pages Posted: 22 Jun 2005

See all articles by Mahmud Hossain

Mahmud Hossain

Nanyang Technological University (NTU) - Division of Accounting

Kamran Ahmed

La Trobe Business School, La Trobe University

Jayne M. Godfrey

University of Auckland

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.

Suggested Citation

Hossain, Mahmud and Ahmed, Kamran and Godfrey, Jayne M., Investment Opportunity Set and Voluntary Disclosure of Prospective Information: A Simultaneous Equations Approach. Journal of Business Finance & Accounting, Vol. 32, No. 5-6, pp. 871-907, June 2005, Available at SSRN: https://ssrn.com/abstract=736411

Mahmud Hossain (Contact Author)

Nanyang Technological University (NTU) - Division of Accounting ( email )

Nanyang Business School
Singapore, 639798
SINGAPORE
+ 65 792 4217 (Fax)

Kamran Ahmed

La Trobe Business School, La Trobe University ( email )

Kingsbury Drive
Melbourne, VIC 3086
Australia
0403038387 (Phone)
3105 (Fax)

Jayne M. Godfrey

University of Auckland ( email )

12 Grafton Road
Auckland, 1010
New Zealand

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