Information ambiguity and firm value

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. October 2014 This paper is forthcoming in Applied Economics LettersAbstract A recent theoretical model by Epstein and Schneider (2008) predicts that a firm's assets will be undervalued by the market if the information surrounding these assets is ambiguous. The model further predicts that this effect is amplified if the underlying fundamentals are volatile. This paper provides an empirical test.

Ambiguity, Managerial Ability, and Growth Options

“…Epstein and Schneider, 2008) and the higher propensity for default and corporate failure associated with them (Griffin and Lemmon, 2002). Hussinger and Pacher (2015) document that when it comes to firm innovative assets and R&D, information ambiguity has a negative effect on market value. Overall, ambiguity from managers and investors should be inversely related to corporate growth options.…”

“…Studying the interplay between firm‐specific ambiguity and ability is important because it helps to shed light on how, and the extent to which, learning, know‐how and management quality can mitigate the cognitive decision‐making biases affecting firms in environments of high uncertainty. We further complement Hussinger and Pacher (2015, 2019) by obtaining ambiguity information directly from financial statements and firm‐specific market data (as well as from 10‐Ks), capturing investors’ and managers’ own ambiguity perceptions about the firm's economic prospects. We additionally confirm the evidence by Colombo and Grilli (2005, 2010) and others (on linkages between human capital and firm growth) that management quality differentials across firms are important in explaining differences in growth options value.…”

“…While competence‐based research has shown that human capital and managerial skills are key drivers of firm growth, real options research is yet to assess the contribution of managerial ability to growth options value. In another set of insightful papers which apply the knowledge‐ and resource‐based views to the context of firm innovative assets, Hussinger and Pacher (2015, 2019) show in their dataset of 382 manufacturing companies that the association between information ambiguity – proxied by analyst forecast dispersion – and firm value is negative, and suggest that patents may partly mitigate this association. We add to extant research and complement the findings of Hussinger and Pacher (2019) by (i) examining the strategic growth options component of firm value, which is also fundamental to its innovative assets and knowledge reserves, (ii) investigating the effect of firm‐specific ambiguity on strategic flexibility and GO value through a behavioural real options lens and (iii) examining the joint role of ambiguity and managerial ability – and their interaction – in the GO value equation.…”

Causal ambiguity: shape-flip between product market competition at industry level and voluntary disclosure

“…In general, risk and ambiguity are the two main concepts of uncertainty (Zhang 2006). The former describes uncertainty over payoffs while the latter refers to uncertainty about the probability of payoffs (Epstein and Schneider 2008;Hussinger and Pacher 2015;Williams 2015). Causal ambiguity is very similar to information ambiguity, but it emphasises uncertainty over the distributions of firms' inputs-outputs structure (Luft et al 2016;Mosakowski 1997), rather than uncertainty over the distributions of payoffs/outputs.…”

Determinants of investment in fixed assets and in intangible assets for high-tech firms

“…Audretsch (1995), Henrekson & Johansson (2010) and Colombo et al (2014) say that high-tech firms are very important for developed countries as the drivers of their economic growth and employment. In the context of high-tech firms' activities, intangible assets are of great importance (Dilling-Hansen & Smith, 2014;Hussinger & Pacher, 2015). However, the great weight of intangible assets and lesser weight of fixed assets, which characterizes high-tech firms compared to firms in other sectors, could contribute decisively to high-tech firms finding it difficult to access external finance, when internal funds are clearly insufficient (Coleman & Robb, 2009).…”