Disclosure Readability and the Sensitivity of Investors' Valuation Judgments to Outside Information

• 成果类型: Article
• 署名作者: Asay, H. Scott; Elliott, W. Brooke; Rennekamp, Kristina
• 署名单位: University of Iowa; University of Illinois System; University of Illinois Urbana-Champaign; Cornell University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-51570
• 发表日期: 2017
• 页码: 1-25
• 关键词: subsequent judgments; earnings; search; fluency; explanation; preferences; Mediation; attention; Auditors

摘要

Prior literature suggests that investors react less strongly to information in less readable disclosures. We extend this literature by considering how disclosure readability affects the sensitivity of investors' valuation judgments to the information contained in outside (i.e., non-firm) sources of information. Using an experiment, we present investors with a disclosure containing mixed news about the valence of firm performance, and this disclosure varies in readability. We find that investors who initially view a less readable firm disclosure provide valuation judgments that incorporate the outside information to a greater extent, such that their valuation judgments are more sensitive to whether outside information is relatively more or less supportive of management's positive forward-looking statements. We find evidence that this occurs primarily because investors who view a less readable initial disclosure feel less comfortable evaluating the firm and, in turn, rely more on the outside information. We also find that viewing a less readable firm disclosure indirectly increases the extent to which participants search outside information. Combined, our results suggest that investors' valuation judgments may be more influenced by outside sources of information when managers provide less readable firm disclosures, potentially limiting the extent to which managers can benefit from strategically issuing less readable disclosures to obfuscate poor performance. These findings also imply that investors might over-rely on more readable disclosures while discounting outside sources of information about the firm.