Valuing voluntary disclosure using a real options approach

This paper outlines a real options approach to valuing those announcements which are made by firms outside of 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 we find that the manager adopts a more transparent disclosure policy, thus violating the Modigliani-Miller theorem on irrelevance of capital structure.