The Role of Real Assets in Voluntary Disclosure: Evidence from Asset Redeployability

Abstract

This paper examines the impact of real asset redeployability on firm voluntary disclosure. We argue that higher asset redeployability increases shareholder demand for voluntary disclosure for two competing reasons. First, asset redeployability increases managerial discretion over the use of assets, which may induce agency costs. Second, asset redeployability provides higher liquidation values, which may decrease lenders' credit risk (i.e., reduce lenders' monitoring). These arguments predict a positive impact of asset redeployability on shareholder monitoring and their demand for voluntary disclosure. Consistent with our arguments, we find that asset redeployability increases the probability and frequency of management forecasts. Our results are more pronounced when shareholders are more influential, when managers are more likely to exploit redeployable assets, and when lenders have weaker monitoring incentives. Collectively, our results provide novel insights into how a firm's real assets influence its voluntary disclosure decisions.

Keywords: asset redeployability, voluntary disclosure, shareholder monitoring, lender monitoring, management forecast