Valuing Intangible Investment Under Ambiguity: When Can Disclosure Help Investors?

This paper examines when disclosure helps investors value intangible investments and what information is useful under different forms of uncertainty. We connect the disclosure literature with the theories of decision-making under ambiguity and real options. On this basis, we develop a conceptual framework that traces what has been invested, what value is expected, and what results have been achieved. We distinguish information asymmetry, where management knows more than the investor, from shared uncertainty about future outcomes. Shared uncertainty takes the form of risk when probabilities can be estimated, or ambiguity when there is no reliable basis for estimating them. Under shared ambiguity, information about management’s future decisions may be more useful than a detailed forecast of the final outcome. This information includes the project’s stages, the funding required, and the conditions for continuation or termination. Disclosing this information enables investors to account for opportunities to limit future losses. Its usefulness depends on how reliably the value and costs associated with termination can be assessed and whether management will follow the announced criteria. Subsequently comparing actual decisions with these criteria, including for unsuccessful projects, may reveal more about management’s reliability than the accuracy of a single forecast. The framework also explains why creditors and shareholders have different information needs. We formulate five propositions for future empirical testing and illustrate their conditions with numerical examples. The analysis offers guidance for disclosure on intangible investments in the context of the review of IAS 38.