TABLE 2 - uploaded by W. Brooke Elliott
Content may be subject to copyright.
Source publication
We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a good proxy for nonprofessional investors. To conduct our investigation, we categorize recent experimental studies in financial accounting, based on the relative level of integrative complexity inherent in each s...
Context in source publication
Context 1
... measure acquisition by asking participants three questions: (1) whether American Financial had an investment banking relationship with Ultra Analyzers, (2) whether the stock research report issued by American Financial was favorable or unfavorable toward Ultra, and (3) whether American Financial's research report covered only Ultra Analyzers, only Firm H, only Firm Z, or all three firms. As shown in Panel A of Table 2, 97 percent of nonprofessional investors correctly answered the question of whether American Financial had an investment banking relationship with Ultra Analyzers compared to 81 percent of early M.B.A. students and 86 percent of select M.B.A. students. Although correct response rates were high for all three groups, Panel B shows that the rate for nonprofessional inves- tors is higher than that for early ( 2 5.88, p 0.02) and select ( 2 3.30, p 0.07) M.B.A. students. ...
Similar publications
This study aims to ensure that the behavior of individual stock investors has the best pattern in accordance with the existing personality, and see the business cycle starting from introduction, growth, maturity, decline in LQ-45 from the proxy of operational cash flows, investment cash flows, and funding cash flows. This study uses the Analytical...
This study aimed at establishing relationship between domestic debt, macroeconomic indices and the viability of the construction sector of Nigeria economy with a view to initiate empirical model for investor's decision making. Archival data on monetary and fiscal macroeconomic indices such as unemployment rate; exchange rate; inflation rate; intere...
The article examines the firm’s investment growth effect following capital liberalization and financial constraints. It employs firm-level aggregated data of 80 firms for the period of 2006 to 2016. Employing the differenced dynamic panel regression technique, the analysis has revealed among others that investment growth appears to be significantly...
A credit rating indicates a firm’s risk of financial default. Using 1) controlling shareholders’ ownership and 2) foreign investors’ ownership as proxies for corporate governance, we investigate whether corporate ownership structure influences a credit rating agencies’ perception of risk. Using a sample of 1,213 KRX firm-year observations, and a t+...
We show that the repurchaser–issuer return spread is stronger among stocks with high return volatility. Rational and behavioral
theories predict that this finding is the product of risk volatility and sentiment volatility, respectively. However, our
results are inconsistent with these theories as they currently stand. Loadings on standard risk fact...
Citations
... Prior accounting studies have used Mechanical Turk participants to proxy for nonprofessional investors (Rennekamp 2012;Rennekamp et al. 2015). We believe our participants' knowledge level is sufficient for the experimental task (Libby et al. 2002), which has low complexity (Elliott et al. 2007) and only requires the participants to have some limited knowledge of accounting. On average, our participants have about 12 years of working experience and 5 years of investment experience. ...
This study examines how investors incorporate unrealized gains or losses reported in Other Comprehensive Income (OCI) into their investment judgments. Since unrealized gains or losses can be presented in either OCI or net income—gains from trading securities are included in net income, while those from available-for-sale securities are reported in OCI (ASC 320 and ASC 851)—it raises the question of whether OCI items are perceived as equally significant as net income items. To explore this, we conducted a 2 × 2 experiment with 240 individual investors, manipulating the presentation of unrealized gains or losses in either net income or OCI. Our findings reveal that unrealized gains are valued significantly lower when presented in OCI compared to net income, indicating that investors see OCI-reported gains as less relevant. However, for unrealized losses, the incorporation degree remained consistent across both presentations, reflecting a general aversion to unrealized losses regardless of how they are reported.
... 4 3 We refer to the individuals who invest in ECFs as "ECF investors" or "amateur investors." Although they may share some similarities with non-professional investors, we distinguish these individuals differently because priori accounting research has studied non-professional individuals (e.g., Elliott et al., 2007) in the context of analyzing financial statements to make a decision about a traditional equity investment. 4 A promotion frame highlights growth, potential achievements, and the likelihood of obtaining positive outcomes (Higgins, 1997), while a prevention frame highlights responsibilities, duties, and structures in place to avoid negative outcomes (Higgins, 1997;Higgins et al., 1994). ...
Equity crowdfunding (ECF) allows amateur investors to fund startups and small and medium-size enterprises (SMEs). Unlike initial public offerings, ECF requires minimal disclosures, fast-tracking equity raising. ECF's popularity has surged, yet little is known about how assurance services might impact investor decisions. Drawing on regulatory focus theory, we examine how independent assurance, pitch characteristics, and investor regulatory focus influence investment decisions in ECF. Our results support our hypotheses that audits of historical financial information increase ECF investors’ likelihood to invest. Further, interactions between the audit, investors’ regulatory focus, and the regulatory focus of the ECF pitch increase investment such that the presence of an audit increases investment for prevention-focused individuals, and especially the audit is most likely to increase investment for prevention-focused investors when the SME’s pitch is also prevention-focused. Overall, we contribute to literature by exploring the influence of assurance in a new context of ECF, shedding light on previously unexplored aspects of investor decision-making.
... The validity of this approach has been supported by a study that compared the responses from students pursuing a Master's in Finance and Accounting and non-professional investors, drawing a positive conclusion about the validity of using postgraduate students as surrogates for non-professional investors [18,[38][39][40][41] The reasons are as follows: First, their sufficient understanding of finance and accounting allow them to grasp the experimental requirements and successfully fulfill the task [40]. Second, students are one of the purest groups of people, least disturbed by social factors, and thus can reflect the true nature of individuals to a greater extent. ...
... The participants are 140 postgraduate students enrolled in a Master of Accounting program at a reputable finance and economics university in China who acted as surrogates for non-professional investors [18,[38][39][40][41]. Among all participants, 32% were male, and 68% were female. ...
In this research, we conducted 1 × 3 and 2 × 2 between-subject experiments to delve into the impacts of ESG assurance, the assurance presentation mode, and the depth of assured ESG indicators on the investment inclination of non-professional investors. Our empirical findings illuminated that non-professional investors exhibited a stronger inclination to invest in companies endorsed with ESG assurance compared to those lacking such endorsement. Furthermore, we observed that this inclination was heightened by presenting the ESG assurance report separately from the ESG report and by enriching the assured ESG indicators. Mediation analysis underscored that the influence of ESG assurance on the investment willingness of non-professional investors operated through its effect on their perception of companies’ ESG performances. This study stands as a valuable addition to the literature on non-financial information disclosure, shedding light on the pivotal role of ESG assurance.
... Investment decisions of actual non-professional investors are significantly similar to those of business graduates (Liyanarachchi and Milne 2005). Due to the lack of access to actual investors, researchers can consider MBA/Business graduates as participants in the new venture related studies as a proxy of actual investors (Elliott et al. 2007). Following the study of Elliott et al. (2007), many studies in new venture investment decisions have considered MBA/Business graduates as samples (Cappa et al. 2021;Lipusch, Dellermann, and Ebel 2017;Wuebker and Bigelow 2011). ...
... Due to the lack of access to actual investors, researchers can consider MBA/Business graduates as participants in the new venture related studies as a proxy of actual investors (Elliott et al. 2007). Following the study of Elliott et al. (2007), many studies in new venture investment decisions have considered MBA/Business graduates as samples (Cappa et al. 2021;Lipusch, Dellermann, and Ebel 2017;Wuebker and Bigelow 2011). In continuation, we recruited business graduates across multiple business schools in India through invitations. ...
Researchers have suggested that new venture investors quickly conclude their decisions and rely on heuristics. However, there is a paucity of empirical work exploring the impact of time constraints on new venture investment decisions. To fill this gap, we are exploring the impact of time constraints on the new venture investment decision process and the final investment decision using the arguments of the Dual Process Theory. A balanced experiment setup is used, where the treated group is given time constraints to make the decision. Results show that investors under time constraints consider only a subset of the available information signals to perceive the probable prospects and to make final investment decisions. This consideration of a subset of information signals results in a partial assessment of the proposal where investors focus more on return potential than risk exposure aspect of investment proposals. This inclination towards return potential increases the scale of investment.
... While the acquisition of students seems to be comparatively more effortless in the university context, the suitability of this group as a proxy for the evaluation of financial contexts is controversial. Considering the task's complexity compared to the students' experience level, Elliott et al. (2007) find empirical evidence for the usability of MBA students as proxies. In the context of assurance services, Low and Boo (2012) argue that the basic knowledge of accounting is given because of the students' curriculum. ...
... Our task requires a basic understanding of the relationship between news valence and a company's valuation (i.e., positive news likely has a positive impact on valuation) and, thus, is one of low integrative complexity (seeElliott, Hodge, Kennedy, and Pronk 2007). We recruit business student participants because the chosen universities teach students about this relationship throughout the curriculum, starting in the very first financial accounting class. ...
Investors face a difficult challenge in determining whether news they read is true or fake and, according to psychology theory, an additional challenge of ceasing to rely on news subsequently revealed to be fake. To help address this latter challenge, we examine whether prompting investors to be in a deliberative mindset reduces their reliance on news after they learn that it is fake without affecting their reliance on news later revealed to be true. Consistent with theory, investors adjust their valuation assessments when news is later revealed to be fake, and this adjustment is magnified for investors in a deliberative mindset. Importantly, our results reveal that a deliberative mindset does not cause investors to discount news later revealed to be true.
Data Availability: Please contact the authors.
JEL Classifications: M41; G11; G4; C91; D83.
... Like prior research [32,33,35,43,64], we used MBA students as proxies for nonprofessional investors. By comparing the responses (financial analysis and investmentrelated judgments) of MBA students and nonprofessional investors through experiments, Elliott et al. [65] proved that MBA students are a good and reasonable proxy for nonprofessional investors. They possess basic accounting and investing knowledge and therefore fit the criteria of nonprofessional investors [66]. ...
Corporate donation is an important business strategy, but not all donations can yield the expected positive outcomes. Thus, it is urgent to know what donation strategies firms should use to obtain positive responses from different stakeholders. By conducting two experimental studies, we explore which donation frequency strategy, one-time or multiple-time donations, drives more positive investor responses and the difference in the mediating roles of altruistic/egoistic bidirectional motive attributions. The results show that for donation projects supporting ongoing causes, a multiple-time strategy leads to investors having more positive judgments of a firm’s future earnings prospects and higher investment desirability rather than a one-time strategy because it induces more altruistic attributions. Although investors make both altruistic and egoistic attributions for both strategies, only the mediating role of altruistic attribution exists, whereas that of egoistic attribution does not. Our research contributes to the study of corporate donation strategies and corporate social responsibility (including corporate donation) motive attribution, providing valuable insights for academic research, corporate decision makers, and stakeholders invested in responsible business practices.
... Adicionalmente, Liyanarachchi e Milne (2005) também encontraram resultados similares entre comportamentos de estudantes e de investidores quanto ao padrão de alocação de recursos em investimentos de curto e longo prazo de estudos. Na mesma linha, Elliott et al. (2007) encontram resultados que asseveram o uso de estudantes de MBA como uma boa proxy para investidores individuais quando a complexidade da tarefa é adequada para o conhecimento dos estudantes. Por fim, Trottier e Gordon (2018) também encontram resultados demonstrando que estudantes tomam decisões similares a gerentes acerca de avaliações de impairment de ativos. ...
The main objective of this article is to guide the researcher, through the exposition of highlights and examples from previous literature, in the building of an experimental scenario for the investigation of his research question. The study focuses on the use of experimental scenarios in accounting research, bringing specific highlights that must be observed regarding the theoretical and methodological development of the instrument. Highlights of a methodological nature, relevant to the use of experimental scenarios aimed at investigating accounting research questions focusing on individuals' judgment and decision-making, are systematized. The impact of this research consists of systematizing aspects relevant to the building of experimental scenarios that can affect methodological rigor and internal, construct, and statistical conclusion validity. It consists of a method proposal approach, with examples brought through a narrative review. The study systematizes relevant aspects to be considered in the researchers' choices regarding the building of experimental scenarios, such as the role of randomization, the choice of participants, the minimization of social desirability bias, specific ways of collecting the dependent variable, and possibilities of collecting the participant pool. Additionally, the role of using experimental scenarios is discussed in view of the theoretical nature of the research question, mainly regarding the assessment of judgment and decision making.
Keywords:
experiment; experimental scenarios; accounting research; causality; experimental games
... Additionally, Liyanarachchi and Milne (2005) also found similar results between student and investor behavior regarding the pattern of resource allocation in short-and long-term study investments. Along the same line, Elliott et al. (2007) find results that assert the use of MBA students as a good proxy for individual investors when task complexity is adequate for the students' knowledge. Finally, Trottier and Gordon (2018) also find results demonstrating that students make similar decisions to managers regarding asset impairment assessments. ...
The main objective of this article is to guide the researcher, through the exposition of highlights and examples from previous literature, in the building of an experimental scenario for the investigation of his research question. The study focuses on the use of experimental scenarios in accounting research, bringing specific highlights that must be observed regarding the theoretical and methodological development of the instrument. Highlights of a methodological nature, relevant to the use of experimental scenarios aimed at investigating accounting research questions focusing on individuals' judgment and decision-making, are systematized. The impact of this research consists of systematizing aspects relevant to the building of experimental scenarios that can affect methodological rigor and internal, construct, and statistical conclusion validity. It consists of a method proposal approach, with examples brought through a narrative review. The study systematizes relevant aspects to be considered in the researchers' choices regarding the building of experimental scenarios, such as the role of randomization, the choice of participants, the minimization of social desirability bias, specific ways of collecting the dependent variable, and possibilities of collecting the participant pool. Additionally, the role of using experimental scenarios is discussed in view of the theoretical nature of the research question, mainly regarding the assessment of judgment and decision making.
Keywords:
experiment; experimental scenarios; accounting research; causality; experimental games
... Consistent with prior research, we use M.B.A. students as proxies for reasonably informed investors (e.g., Nelson and Rupar 2015;Tan, Wang, and Zhou 2015;Elliott, Hodge, Kennedy, and Pronk 2007;Elliott, Hobson, and Jackson 2011). A total of 470 M.B.A. students participated in this experiment, with 463 (99 percent) participating in exchange for extra credit offered by their instructor. ...
We investigate how rounded (e.g., 10 percent) versus unrounded (e.g., 9.73 percent, 10.00 percent, or 10.27 percent) sales growth forecasts impact investor judgment. We hypothesize that investors are more willing to invest in a company when the degree of rounding matches the amount of forecast uncertainty (i.e., rounded forecasts in more uncertain environments and unrounded forecasts in less uncertain environments). We also hypothesize that managers can offset the negative impact of a mismatch between forecast rounding and forecast uncertainty by using more immediate language in their forecasts. In a first experiment using M.B.A. students as investors, we find a combination of support and partial support for our hypotheses. However, in a second experiment using online workers and a third experiment using M.B.A. students, we fail to find support for our hypotheses. Overall, we fail to find replicable effects of forecast rounding, forecast uncertainty, and language immediacy on investors’ judgments.
