Download or read book The Influence of Sensitivity Disclosures on Investor Judgments written by W. Brooke Elliott and published by . This book was released on 2008 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study presents the results of an experiment that examines how sensitivity disclosures influence investors' judgments of the reliability of financial statement items. A sensitivity disclosure uses quot;parametersquot; to describe the slope of change in a financial statement item value in response to change in an input that underlies the item. Since sensitivity can be depicted using any two points along the slope of change, managers can choose different parameters to communicate the same sensitivity. In our experiment, we manipulate the magnitude of the parameters (i.e., points along the slope of change) used in the sensitivity disclosure for the capitalized software development asset of a hypothetical firm. The results indicate that investors' reliability judgments decrease as the reported parameters increase. Mediation analysis provides evidence that the effect of parameters on investors' reliability judgments occurs through their impact on the size of the set of alternative financial statement item values investors perceive as a result of observing the sensitivity information. Additional evidence suggests that the effect of parameters reflects an unintentional reliance on the set of alternative values made available by the parameters, rather than a conscious response to a perceived management signal about reliability through parameter choice. This study has implications for disclosure requirements given the increasing acceptance of measurement attributes that require estimation (e.g., fair value), and improves our understanding of how disclosures influence investors' reliability judgments.
Download or read book The Importance of Quantifying Uncertainty written by Aasmund Eilifsen and published by . This book was released on 2019 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: The amount of estimation uncertainty contained in financial statement items may be obscured from investors, given that all estimates, regardless of their imprecision, are reported as precise figures on the face of the financial statements. Our study examines two disclosures expected to help investors evaluate the reliability of subjective fair value estimates: a quantitative sensitivity analysis (QSA) and the auditor's quantitative materiality threshold. Using an experiment, we predict and find that investors judge the reliability of a reported estimate to be higher and are more willing to invest in the company when a QSA disclosure is indicative of low sensitivity (i.e., greater precision) compared to high sensitivity (i.e., greater imprecision), but only if the auditor's materiality threshold is also disclosed. When materiality is not disclosed, investors fail to recognize differences in reliability between the two levels of sensitivity, even though the amount of imprecision in the low sensitivity condition represents a fraction of materiality, while in the high sensitivity condition, this amount exceeds materiality multiple times over. Furthermore, when both disclosures are absent and only a qualitative description of sensitivity is provided -- as required by current standards -- investors respond to the ambiguous disclosure by decreasing their willingness to invest. The results of our study should be informative to accounting and auditing standard setters as they continue to consider the types of disclosures that may help investors understand the most complex and subjective aspects of financial reporting.
Download or read book Financial Estimates Against Investors Preferences written by Ozlem Arikan and published by . This book was released on 2017 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This experimental study investigates how the characteristics of an estimate in a sensitivity disclosure and the level of threat it presents to investors' preferences interact to influence investors' risk judgments. Firstly, I predict and find that variation in an estimate affects not only investors' judgment on a related issue but also their future judgments on an unrelated issue. Secondly, I predict and find that investors are more sensitive to variations in an estimate when information contained in the estimate presents less threat to their preferred conclusions than when it presents greater threat. Finally, I predict and find that investors perceive more uncertainty regarding the association between the disclosed risk factor and the estimated financial reporting item in the estimate when the information presents greater threat.
Download or read book Effects on Investor Judgments from Expanded Disclosures of Non financial Intangibles Information written by Alex Ching-Chung Yen and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effect of the Specificity of the Risk Disclosure Language on Investors Risk and Credibility Judgments written by and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Decision Usefulness of Additional Fair Value Disclosures written by Theresa Herrmann and published by Springer. This book was released on 2018-12-28 with total page 189 pages. Available in PDF, EPUB and Kindle. Book excerpt: Conducting an experiment Theresa Herrmann investigates why nonprofessional investors fail to incorporate disclosures on fair value estimates into their investment decision and what causes this exclusion. Differentiating between different types of disclosures and the development of the fair value (gain vs. loss) the results indicate that with a fair value gain, none of the disclosure information increases decision usefulness, irrespective of the presentation format. When a fair value loss occurs, fair value disclosures presented in a salient presentation format decrease decision usefulness. Thus, investors have varying information needs that are strongly linked to the development of a firm’s key asset.
Download or read book How Do Opportunistic Disclosures Impact Nonprofessional Investors Decision Making Disinhibiting and Inhibiting Mechanisms written by Gary M. Entwistle and published by . This book was released on 2019 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: We report the results of an experiment where management discloses in the audited financial statements an opportunistic firm-specific capital structure. This disclosure, required under current IAS 1 rules, is subjective and susceptible to management bias. In our study, if used by nonprofessional investor participants, the disclosed capital structure will lead to higher firm values than would capital structures commonly determined from the firm's balance sheet. Our results show that the opportunistic capital structure note disclosure influences nonprofessional investors' judgment and decision making. Indirect effects provide evidence of causal reasons why this occurs. When provided the note disclosure, nonprofessional investors value the firm greater and believe it is a more attractive investment which function as disinhibiting mechanisms underlying stock purchasing decisions. In contrast, nonprofessional investors' ability to recognize bias in the firm's financial reporting operates as an inhibiting mechanism underlying stock purchasing decisions. We also find cautioning participants of management's ability to distort the disclosure had no effect, differing from prior research. Our study adds to the disclosure literature and has important implications for investors, standard setters, and auditors as it raises questions of how to protect society from permitted opportunistic accounting disclosures.
Download or read book Program and Proceedings written by American Accounting Association and published by . This book was released on 2007 with total page 388 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Voluntary Disclosure of Sensitivity written by Bjorn Jorgensen and published by . This book was released on 2009 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Starting in 1997, the U.S. Securities and Exchange Commission required that some firms disclose information about risks. One format for risk disclosures let firms disclose correlations by allowing firms to report the sensitivity to market risk factors of cash flows related only to financial instruments and derivatives. Prior theoretical accounting research analyzes the benchmark of voluntary disclosures to establish the effects of mandating disclosures of various types, but not disclosures of sensitivities. We propose the first theoretical model that analyzes the consequences of mandating firms to disclose their sensitivity. This model extends previous research on managers' voluntary disclosures of variances of future cash flows and measurement error of disclosures. Specifically, we derive equilibrium prices and stock returns endogenously in a setting where truthful disclosure of the sensitivity is voluntary, that is, the manager may elect to not disclose. We show that in the absence of disclosures about the sensitivities, investors require an additional risk premium. We further show that a manager's decision to disclose or withhold the sensitivity may be affected by other firms' disclosures of sensitivity even when sensitivities are uncorrelated. Finally, we show how voluntary sensitivity disclosures affect firms' cost of capital even in the limiting case with infinitely many firms.
Download or read book The Effects of Current and Expanded Analyst Ownership Disclosure on Nonprofessional Investors Judgments and Decision Making written by Robert Marley and published by . This book was released on 2015 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: In two experiments, this study examines the effects of current and expanded analyst ownership disclosure on nonprofessional investors' confidence in analyst recommendations and on the amount invested by nonprofessionals. Experiment one examines how nonprofessional investors interpret analyst ownership disclosures currently required by Title V of the Sarbanes-Oxley Act of 2002. The results of experiment one suggest that current ownership disclosure requirements have no significant effect on either investors' confidence in analysts' recommendations or on the amount ultimately invested in the firm recommended by the analyst. Experiment two extends the first experiment by expanding the granularity of the ownership disclosures provided to investors to incorporate two additional factors: ownership magnitude and ownership duration. Applying Rational Choice Theory, we find evidence of an interactive effect on investors' judgments such that investors who receive a disclosure that an analyst holds a large, short-term investment in a recommended firm perceive the analyst is more likely to be engaging in puffery than investors who receive alternative disclosures. We also find evidence of mediated-moderation such that investors' confidence in the analyst's report mediates the effect of the disclosure on the amount invested. In sum, we find evidence to suggest analyst ownership disclosures affect capital market liquidity and we discuss the implications of our findings for regulators and market operators seeking to improve investor confidence and market liquidity.
Download or read book Understanding Investors Reliance on Disclosures of Nonfinancial Information written by Lei Dong and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates investors' reliance on corporate voluntary disclosures of nonfinancial information through two studies consisting of three experiments.
Download or read book Winning decisions written by Kim Hua Tan and published by . This book was released on 2003 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book When Do Qualitative Risk Disclosures Backfire The Effects of a Mismatch in Hedge Disclosure Formats on Investors Judgments written by Yanan He and published by . This book was released on 2019 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: Disclosure standards mandate the quantitative disclosure of hedging-instrument related risks but not the disclosure of hedged item related risks. We examine how a match (mismatch) in formats, caused by making quantitative (qualitative) hedged item disclosures alongside quantitative hedging instrument risk disclosures, affects investors' integration of information from these two related disclosures. Our first experiment varies the hedged item risk disclosure format (quantitative or qualitative) and the portion of risk hedged (small or large). We find that when disclosure formats are mismatched, the less comparable nature of the two disclosures caused investors to neglect their offsetting relationship when assessing net risks. As a result, risk and investment judgments were influenced by the more prominent quantitative hedging instrument disclosures. Our second experiment finds that the use of a qualitative debiaser that clarifies the relationship between the two disclosures led to the integration of information and mitigated this effect.
Download or read book How Disclosure Medium Affects Investor Reactions to CEO Bragging Modesty and Humblebragging written by Stephanie M. Grant and published by . This book was released on 2019 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine if investor expectations of two common disclosure mediums (conference calls and Twitter) interact with a CEO's communication style to influence investor judgments. Consistent with theory, results show that when the disclosure medium is a conference call, investors are less willing to invest when the CEO is modest about positive firm performance compared to when the CEO brags. In contrast, when the disclosure medium is Twitter, investors are less willing to invest when the CEO brags about positive firm performance compared to when the CEO is modest. Further analysis reveals that perceived CEO credibility mediates the influence of a CEO's communication style and disclosure medium on investor judgments. Additionally, we find that regardless of the disclosure medium, investors are less willing to invest in a firm when the CEO humblebrags about positive firm performance relative to when he brags or is modest. Our study contributes to the emerging literature on social media and disclosures, and to the literature investigating how style features of disclosures influence investor judgments. Our results also have practical implications for firms and managers developing communication strategies for new disclosure mediums like Twitter.
Download or read book Handbook of Experimental Finance written by Füllbrunn, Sascha and published by Edward Elgar Publishing. This book was released on 2022-10-13 with total page 451 pages. Available in PDF, EPUB and Kindle. Book excerpt: With an in-depth overview of the past, present and future of the field, The Handbook of Experimental Finance provides a comprehensive analysis of the current topics, methodologies, findings, and breakthroughs in research conducted with the help of experimental finance methodology. Leading experts suggest innovative ways of designing, implementing, analyzing, and interpreting finance experiments.
Download or read book Investor Sentiment and Pro Forma Earnings Disclosures written by Nerissa C. Brown and published by . This book was released on 2012 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the influence of investor sentiment on managers' discretionary disclosure of ldquo;pro formardquo; (adjusted) earnings metrics in earnings press releases. We find that managers' propensity to disclose an adjusted earnings metric increases with the level of investor sentiment and, in particular, the propensity to disclose an adjusted number that exceeds the GAAP earnings figure. Further, our analyses suggest that as investor sentiment increases, managers (1) exclude higher levels of both recurring and nonrecurring expenses in calculating the pro forma earnings number and (2) emphasize the pro forma figure by placing it more prominently within the earnings press release. Additional analyses indicate that the association between investor sentiment and managers' pro forma disclosure decisions at least partly reflects opportunistic motives. Finally, we find that managers' own sentiment-driven expectations also play a role in their pro forma disclosure decisions.
Download or read book Advances in Accounting Behavioral Research written by Khondkar E. Karim and published by Emerald Group Publishing. This book was released on 2022-08-25 with total page 205 pages. Available in PDF, EPUB and Kindle. Book excerpt: Focusing on research that examines both individual and organizational behavior relative to accounting, Volume 25 of Advances in Accounting Behavioral Research uncovers emerging theories, methods and applications.
