No full-text available
To read the full-text of this research,
you can request a copy directly from the authors.
The Impact of Expertise and Investment Familiarity on Investors' Use of Online Financial Report Information
Abstract
In this study we use a unique dataset to examine whether professional and nonprofessional investors use different online quarterly financial information when making investment decisions, and whether the online information they use depends on whether they are researching a new investment or evaluating a current investment. Our results suggest professional investors prefer to view PDF-formatted quarterly reports and tend to rely directly on the financial statements compared to nonprofessional investors who prefer to view HTML-formatted reports and have a tendency to rely more on management's discussion of the quarter's results. Our results also suggest that for nonprofessional investors, investment familiarity (i.e., whether they are evaluating a current investment or researching a new investment) strongly impacts the type of financial information they view within a firm's quarterly reports. Our results have implications for the design of experimental studies, and provide information useful to managers, financial report users, standard setters, and researchers as they attempt to better understand the types of information that professional and nonprofessional investors use when making investment decisions.
... T echnology allows companies to gather and use information to personalize communication (Hodge and Pronk 2006;Tam and Ho 2006;Montgomery and Smith 2009;LaValle, Lesser, Shockley, Hopkins, and Kruschwitz 2011;Chen, Chiang, and Storey 2012). For example, social media, customer databases, online tracking, and ...
... Advances in technology have greatly enhanced companies' abilities to gather and organize information that they can use to send prospective investors personalized messages (Hodge and Pronk 2006;Kaplan and Haenlein 2010;LaValle et al. 2011;Chen et al. 2012). Although the extent to which companies currently utilize personalized communication to communicate with prospective investors is unknown, companies have many opportunities to do so, and the business press has shown interest in the idea (Cossette 2013). ...
... Companies can also use information obtained through their own websites. Hodge and Pronk (2006) offer an example of this practice. Specifically, Royal Philips Electronics N.V. (Philips) 3 asks website visitors to identify themselves as current or prospective investors. ...
Technology makes it possible for management to personalize communication with individual investors on a broad scale. Building on information processing research, we predict and find that personalized communication prompts investors to process financial information more systematically and rely less on summary measures, such as earnings. Investors receiving more (as opposed to less) personalized communication respond less to management’s myopic decisions that boost short-term performance in their assessments of investment attractiveness, such that they assess a company that increases R&D (at the expense of net income) as more attractive and a company that decreases R&D as less attractive. Further analysis suggests this result is driven by investors with greater experience evaluating financial statements processing the longer-term implications of R&D expenditures for performance more fully when personalization is present. Our paper speaks to investor earnings fixation and myopic behavior from management and provides insights for implementing investor communication strategies.
JEL Classifications: O33; O31; L14; M41; D12; D83.
... Most of the previous studies had rarely focused on the demand view as suggested by Al-Htaybat, Von Alberti-Alhtaybat, & Hutaibat (2011), Quagli & Riva (2009) and Beattie & Pratt, (2003). Furthermore, there is a need to investigate the demand for IBR that focuses on the user's reporting format, which was carried out by past studies (Hodge & Pronk, 2006, Hodge & Pronk, 2006, Ghani, Laswad, & Tooley, 2009, Hodge & Pronk, 2006. The studies showed mixed results in relation to preferences and familiarity of formats in the decision-making process and judgments from the actual usage by the adopted experimental method. ...
... Most of the previous studies had rarely focused on the demand view as suggested by Al-Htaybat, Von Alberti-Alhtaybat, & Hutaibat (2011), Quagli & Riva (2009) and Beattie & Pratt, (2003). Furthermore, there is a need to investigate the demand for IBR that focuses on the user's reporting format, which was carried out by past studies (Hodge & Pronk, 2006, Hodge & Pronk, 2006, Ghani, Laswad, & Tooley, 2009, Hodge & Pronk, 2006. The studies showed mixed results in relation to preferences and familiarity of formats in the decision-making process and judgments from the actual usage by the adopted experimental method. ...
... Most of the previous studies had rarely focused on the demand view as suggested by Al-Htaybat, Von Alberti-Alhtaybat, & Hutaibat (2011), Quagli & Riva (2009) and Beattie & Pratt, (2003). Furthermore, there is a need to investigate the demand for IBR that focuses on the user's reporting format, which was carried out by past studies (Hodge & Pronk, 2006, Hodge & Pronk, 2006, Ghani, Laswad, & Tooley, 2009, Hodge & Pronk, 2006. The studies showed mixed results in relation to preferences and familiarity of formats in the decision-making process and judgments from the actual usage by the adopted experimental method. ...
... Yu (2013) found that the number of analysts following a particular firm affects the value relevance of disclosed pension information as well as the valuation difference between disclosed and recognized information. This may be due to the fact that financial analysts are more experienced investors that are better able to predefine their information needs, execute focused searches to acquire relevant information, and interpret and integrate financial statement information than are less experienced investors (Hodge and Pronk, 2006). Given that, it is consistent that analysts had previously expended the additional cognitive effort reserved for recognized variables, such as the accumulated benefit obligation (Clor-Proell and Maines, 2014), in order to interpret that variable and there was a carryover effect when that variable became merely disclosed. ...
... Yu (2013) found that, in the pension arena, recognized variables are more value relevant than disclosed variables, but only for large cap firms with more institutional and analyst followers. This is consistent with Hodge and Pronk (2006) who found that experienced investors are better able to predefine information needs and acquire relevant information than less experienced investors, and Clor-Proell and Maines (2014) who found that financial executives expend more cognitive effort under recognition than disclosure. Given that analysts tend to follow the same firms for multiple years, ex ante, we expect the accumulated benefit obligation to be more value relevant than the projected benefit obligation in both the pre-and post-SFAS No. 158 period. ...
In the 1990s, financial scandals led to the implementation of the Sarbanes Oxley 2002 Act (SOX), which requires top management to attest to the accuracy of the financial reporting by publicly held corporations. There is lack of research regarding success of SOX Act in preventing earnings management, practices that portray a company as more successful financially than it is in reality. The purpose of this research is to determine if change has occurred in the earnings management practices in publicly traded corporations after implementing the SOX Act. Implications for positive social change include information that can help regulatory authorities preempt manipulation of financial statements reporting, preventing substantial losses to the investors and other stakeholders of publicly traded companies, and maintaining a sound and reliable capital market.
... Empirical evidence on which information sources non-professional investors use is scant (Pennington and Kelton 2016). Nevertheless, existing research suggests that although many non-professional investors use filtered information provided by professional intermediaries, some use unfiltered information disclosed by company management, such as 10-Ks (Hodge and Pronk 2006, Elliott et al. 2008, Pennington and Kelton 2016. Importantly, financial regulators consider such investors in regulating financial disclosures (Elliott et al. 2011, Financial Reporting Council 2017. ...
... Second, the format of sensitivity disclosures is likely to affect non-professional investors more than professional investors, as previous research shows that the former tend to rely more on the management discussion, which is likely to include some sensitivity disclosures, whereas the latter tend to rely directly on financial statements (Hodge and Pronk 2006). Third, compared with professional investors, non-professional investors generally have ill-defined valuation models (SRI International 1987), and are thus more prone to the effect examined in this study. ...
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.
... Also, we cannot observe who uses the annual reports and how the information is processed by the users. In light of the findings by Hodge and Pronk (2006), suggesting a preference among nonprofessional investors for HTML-formatted reports, and Rowbottom and Lymer (2009), who observed that primarily employees accessed firms' sustainability information, we are confident in capturing a broad user base that has not been subject to prior research yet. While this may impose certain constraints on the scope of our results, we believe that the novel insights we provide significantly contribute to shaping further developments in corporate reporting. ...
Purpose
The purpose of the present study is to investigate the demand side of non-financial reporting, especially integrated reporting. We investigate (1) what type of content the users of online integrated reports access most frequently and (2) whether users search for non-financial content and content that integrated reports must contain to comply with the requirements of the International Integrated Reporting Framework (IIRF).
Design/methodology/approach
We perform big data analysis on the log files associated with user access to five online integrated reports over a period of 12 months to investigate what type of information users access most frequently when they visit online integrated reports. Content analysis enabled us to match the usage data (page impressions) to certain topics within the integrated reports. Our analysis, which is based on data reflecting over one million webpage views, indicates which types of integrated-report content attract the users’ attention and which do not.
Findings
Our results confirm that integrated reports in general, and specific components in particular, are of significant value to users. In contrast to what other studies suggest, we find no evidence that users seek financial information to a much greater extent than non-financial information. Specifically, our results show that usage between financial and non-financial information is quite evenly distributed and differs depending on the metric under consideration; considering usage by topic impressions financial information is used more frequently, scaling topic impressions by report pages addressing a specific topic, non-financial information displays higher usage. With respect to specific topics, our analysis shows that the topics that attracted most interest from our sample of users are performance, financial statements, company profile and value creation. Furthermore, our findings confirm the importance of integrated reporting from a user perspective.
Practical implications
The results of our study are of practical value to both standard setters and (potential) preparers for two main reasons: first, they provide user-centric evidence about the importance of non-financial information and empirically confirm that integrated reporting has become widely accepted among users; second, they provide evidence about the topics that are of specific interest for users and therefore should also be considered by preparers and standard setters more carefully.
Originality/value
The present study enriches the literature on financial and sustainability reporting with informative insights into which of the topics that integrated reports contain attract most interest from users. Moreover, our results are based on actual data on the usage of such reports that reflect real user-journeys, rather than on artificial data, created for research purposes.
... ;Lee & Tweedie, 1975;Hodge & Pronk, 2006). Government tax agencies use financial statements to assess how much tax can be collected. ...
... According to Jegadeesh et al. [16], analyst reports, underpinned by insights from experienced analysts, serve as valuable resources in financial decision-making, particularly in investments [14,15,17]. Compared to news articles or social media posts, these reports have significantly less noise and often contain more refined information about individual stocks. ...
... Prior research has shown that a large portion of investors only rely on salient, readily available information and simple heuristics (Dietrich, Kachelmeier, Kleinmuntz, and Linsmeier 2001;Hirshleifer and Teoh 2003;Hirst, Hopkins, and Wahlen 2004) and do not make complex calculations that require significant knowledge (Schipper 2007). Prior studies further indicate that, relative to professional investors, nonprofessionals show a stronger preference for unorganized and nonaudited information from the MD&A section because they have less understanding of the relative importance of various financial statement items and less ability to integrate that information into an overall view of company performance (Hodge and Pronk 2006). ...
Audit disclosure requirements have increased across countries in recent years. In this study, we explore a disclosure pattern that has been adopted by approximately 23 percent of Chinese publicly listed companies and their auditors—the disclosure of up to three overlapping items both in the risk factor section of financial reports and in the key audit matters (KAM) section of the audit report. We predict and find that such disclosure overlaps increase auditor liability, using audit fees as a proxy for auditor liability, and that (1) both the magnitude and explicitness of overlapped disclosure are positively associated with auditor liability and (2) analyst following, Top 10 auditors, and auditor tenure play a moderating role in the association between overlapped disclosures and auditors’ perceived liability. Collectively, our analysis supports our hypothesis that KAM disclosure increases auditor liability when coupled with management disclosure of related risk factors.
Data Availability: Data are available from the sources cited in the text.
JEL Classifications: M41; M42; K41.
... The Internet can present information in various file formats, such as PDF and HTML. Hodge and Pronk (2006) asserted that technologies that allow alternative formats for disseminating financial and non-financial information might support gathering information from investors, influence decision-making and enhance transparency. Users can access information that fulfils their needs as the sitemap and search engine tools enable them to navigate, search, filter, retrieve and download information easily (Wagenhofer, 2007). ...
... Using plaintiff-lawyer EDGAR views to proxy for litigation risk rests on our supposition that plaintiffs' lawyers generally view SEC filings through EDGAR and use this information for ongoing monitoring. We believe this is reasonable because EDGAR is a centralized way to access filings for all companies and is publicly anonymous in real-time, in contrast to firm investor relations websites, where firms monitor web traffic (Hodge and Pronk (2006)). ...
This study introduces a new measure of ex ante litigation risk using scrutiny of SEC filings by the source of securities litigation (plaintiffs’ lawyers) to reduce measurement error, relative to existing measures. We show that plaintiff-lawyer views proxy for the largely unobservable factors that make firms more likely to face litigation risk. Lagged views precede the public bad news revelation that triggers litigation and predicts future realized litigation risk (i.e., securities class actions filings and plaintiff-lawyer investigations) and stock market outcomes. Finally, we provide new insights into the plaintiff-lawyer case selection process that otherwise cannot be observed.
... Adhikari (2020) provided further insights that asides the financial statements, other factors are significant in shaping individual investment decisions include statement of government officials, firm's industry status, expected capital increase, recent price movement in firm's stock, dividend paid, stock marketability, perceived ethics of the firm, opinion of firm's majority stockholders, rumors and results of technical analysis. Non-professional investors tend to rely on the management's discussion of periodic financial statements and investment familiarity determines the nature of financial information required in the reported periodic financial statements (Hodge & Pronk, 2006). Balata & Breton (2005) deepened the discussion further distinguishing between the qualitative and quantitative aspects of published annual reports of firms. ...
Financial statement evaluation and analysis is key to potential and existing investors, as this serves as the major official document published by companies that comprehensively highlight their performance for the period. In line with this, the study empirically investigated the qualitative evaluation of financial statement as a basis for investment decision in Nigeria. The study employed survey research design by which data were generated and gathered by means of well-structured questionnaire. The findings from the 100 questionnaires retrieved out of 130 administered to investors showed that, majority of investors had adequate understanding of financial reports, substantial number of investors considered and gave priority to the published financial statement of companies and its credibility is enhanced when such published report is endorsed by a reputable and credible audit firm. It was recommended that, investors should ensure that they do not make investment decision based on only quantitative factors such as the revenue, profit for the year and dividend declaration as they can be sometimes misleading but rather, they should consider other qualitative factors such as endorsement of the financial statement by a credible audit firm, going concern status of the company and the reputation of the company. Finally, relevant regulatory authorities should come up with policies and regulations that will ensure all financial statements are genuinely endorsed and signed by reputable auditors before being published so that investors and potential investors are not misled.
... Using plaintiff-lawyer EDGAR views to proxy for litigation risk rests on our supposition that plaintiffs' lawyers generally view SEC filings through EDGAR and use this information for ongoing monitoring. We believe this is reasonable because EDGAR is a centralized way to access filings for all companies and is publicly anonymous in real time, in contrast to firm investor relations websites, where firms monitor web traffic (Hodge and Pronk (2006)). ...
This study introduces a new measure of ex ante litigation risk using scrutiny of SEC filings by the source of securities litigation—plaintiffs' lawyers—to reduce measurement error, relative to existing measures. We show that plaintiff-lawyer views proxy for the largely unobservable factors that make firms more likely to face litigation risk. Lagged views precede the public bad news revelation that triggers litigation and predict future realized litigation risk (i.e., securities class actions filings and plaintiff-lawyer investigations) and stock market outcomes. Finally, we provide new insights into the plaintiff-lawyer case selection process that otherwise cannot be observed.
... Laporan keuangan memiliki informasi yang komprehensif yakni mengenai operasional, pencapaian, dan posisi keuangan. Laporan keuangan yang diaudit menjadi salah satu dasar dalam pengambilan keputusan yang diandalkan tidak hanya oleh para investor, namun juga stakeholder lainnya (Amedu, 2012;Blessing & Onoja, 2015;Duréndez Gómez-Guillamón, 2003;Hodge & Pronk, 2006;Nguyen et al., 2016). Situasi saat ini di mana banyaknya aturan mengenai pembatasan-pembatasan ekonomi yang terjadi, pertanyaan yang juga muncul adalah terkait kemampuan laporan keuangan untuk menangkap fenomena ini dan angka yang disajikan pada laporan keuangan dapat digunakan untuk membuat forcasting, prediksi, dan yang terpenting terkait keberlangsungan perusahaan itu sendiri. ...
p class="kontenutama">Prediksi keberlangsungan usaha sangat penting dilakukan karena akan menggambarkan kondisi keuangan perusahaan sub sektor hotel, restoran dan pariwisata yang terdampak pandemi COVID-19. Sebanyak dua puluh sembilan (29) perusahaan sub sektor hotel, restoran dan pariwisata yang terdaftar di Bursa Efek Indoensia pada tahun 2020 menjadi objek penelitian. Dalam menilai keberlangsungan perusahaan, penelitian ini menggunakan model Altman Z-Score yang dimodifikasi, yang terdiri dari empat (4) rasio. Rasio-rasio tersebut antara lain: modal kerja dibagi total aset, laba ditahan dibagi total aset, EBIT dibagi total aset, dan book value of equity dibagi book value of liability . Dari model ini akan didapatkan nilai Z-Score masing-masing perusahaan, yang kemudian dikategorikan menjadi kategori Sehat, Rawan, dan Potensi Bangkrut. Penelitian ini menunjukkan bahwa, dari 29 perusahaan yang diuji, 12 di antaranya termasuk dalam kategori Sehat, 4 perusahaan berkategori Rawan dan 13 perusahaan berkategori Potensi Bangkrut. Prediksi keberlangsungan usaha dilakukan agar perusahaan dapat mengetahui sedini mungkin adanya potensi-potensi kebangkrutan dan meminimalisir potensi tersebut di masa mendatang. Prediksi ini juga membantu manajer dalam menilai performa dan operasional perusahaan, dan menentukan apakah perusahaan telah memiliki performa yang baik atau belum. Penelitian selanjutnya dapat menguji model yang sama pada sektor lain di BEI, dan juga pada hotel dan yang belum terdaftar di BEI.</p
... Based on survey evidence in Lee and Tweedie (1975), 51.5 per cent of shareholders read the chairman's statement thoroughly, while 34.2 per cent do not read the notes at all (Lee and Tweedie 1975, p. 281). 6 In particular, nonprofessional shareholders seem to rely more on management discussion than on financial statements (Hodge and Pronk 2006). Hence, a reference to the ETR in this section indicates that the corresponding firm considers the ETR to be highly relevant information that should be communicated to the financial statement reader. ...
This study examines GAAP effective tax rate (ETR) visibility as a distinct disclosure choice in firms’ financial statements. By applying a game-theory disclosure model for the voluntary disclosure strategies of firms, in a tax setting, we argue that firms face a trade-off in their ETR disclosure decisions. On the one hand, firms have an incentive to enhance their ETR disclosure when the ratio offers shareholders ‘favourable conditions’, for example, higher expected after-tax cash flows. On the other hand, the disclosure of a favourable low ETR could attract the attention of tax auditors and the public and ultimately result in disclosure costs. We empirically test disclosure behaviour by examining the relation between disclosure visibility and different ETR conditions that reflect different stakeholder-specific costs and benefits. While we find that unfavourable ETR conditions are not highlighted, we observe higher disclosure visibility for favourable ETRs (smooth, close to the industry average, and decreasing ETRs). Additional analyses reveal that this high visibility is characteristic of firm years with only moderately decreasing ETRs at usual ETR levels, while extreme ETRs are not highlighted. Interestingly and in contrast to our main results, a subsample of family firms does not seem to highlight favourable ETRs.
... While rational behaviour models predict that investors are efficient in gathering and processing all available information (Sharpe 1964, Lintner 1965, Black 1972, Merton 1973, information acquisition is costly, in terms of both time and effort (Hirshleifer and Teoh 2003). Thus market participants are selective in what information they acquire and how they use it (Hodge and Pronk 2006). Investors with limited processing and capital capacity appear to be easily distracted (Madsen and Niessner 2019). ...
We define accounting engagement as stakeholders’ actions taken with the intention of influencing corporate reporting. Using this definition, we review the literature on such activism and discuss avenues for research. The evidence reviewed suggests accounting engagement is rare. We reflect on the reasons of this, given evidence on increasing overt engagement on other corporate issues, such as managerial compensation and governance, social, and environmental responsibility. Both information production and information acquisition costs have decreased over time, raising further questions about why engagement has not increased. We consider potential reasons linked to concerns over whether financial reporting meets users’ information needs, particularly, given the emergence of new users and the role of new technologies in the diffusion and processing of information. These concerns have accompanied claims of increasing complexity of financial accounting and the threat of information overload.
... Similarly, equity crowdfunders' previous context-specific experience may also affect their signal sets' relative composition; preexisting knowledge structures that are a function of their prior domain-specific experience may push them to focus more or less on specific information signals (Lord & Maher, 1990) compared to people without prior domainspecific experience. Building on this notion, scholars have shown that people with domainspecific experience in analyzing public firms and their financial statements access different pieces of information in financial reports (Hodge & Pronk, 2006). ...
Signaling theory typically assumes that attention is always given to observable signals. We study signal receivers’ formation of signal sets—the signals to which receivers attend and that they can use for subsequent interpretations. Drawing on a cognitive perspective, we argue that signal receivers’ human capital influences the volume and type of signals they attend to and the time they take to form signal sets. Using eye tracking, we show that equity crowdfunders do not attend to many signals that are easily observable on a campaign page, and that differences in crowdfunders’ human capital uniquely affect their signal set formation.
... Our paper contributes to the recent literature that investigates the behavioral of financial professionals. Existing studies examine the individual attributes such as information processing (Anderson 1988;Andersson 2004;Hodge and Pronk 2006), behavioral biases or anomalies (Cohn et al. 2015;Haigh and List 2005;Kiymaz et al. 2016;Roth and Voskort 2014). In practice, however, multiple financial professionals often cover the same firm. ...
In this study, we study information processing by financial professionals benchmarked with non-professionals and how correlation among individual forecasts explains the group level forecast performance. In an experiment in which participants make price forecasts based on common financial information, we find that individual professionals are no better than individual non-professionals in forecasting, but professionals’ mean forecasts are superior. Our analysis suggests that financial professionals’ individual errors are less correlated as they process information from more diverse perspectives. This leads to superior mean forecasts because the uncorrelated individual errors cancel each other out in the aggregate. In contrast, non-professionals are similar in using salient information such as earnings or cash flow. As a result, their individual errors are highly correlated. Instead of cancelling each other out, the individual errors are enlarged in the aggregated mean forecasts. We are the first to show the difference in the comparisons of professionals and non-professionals at the group level versus at the individual level. Our paper contributes to the literature by documenting the evidence of diversity in information processing by financial professionals.
... While rational behaviour models predict that investors are efficient in gathering and processing all available information (Sharpe 1964;Lintner 1965;Black 1972;Merton 1973), information acquisition is costly, in terms of the time and effort needed to find and process it (Hirshleifer and Teoh 2003). Thus, market participants are selective in what information they acquire, and how they use it (Hodge and Pronk 2006). Investors with limited processing and capital capacity appear to be easily distracted (Madsen and Niessner 2019), or to readily absorb salient, easier-to-analyse information and invest more in firms with more readable, shorter annual reports (Lawrence 2013), while they under-react to earnings announcements (Bernard and Thomas 1989), not fully identify changes in disclosures (Cohen et al. 2020), fail to process information in footnotes, or to discern between the different persistence of the cash flow and accrual components of earnings (Sloan 1996;Xie 2001). ...
... (2014), ITFR'nin algılanan fayda, kullanım kolaylığı ve bilgi kalitesinin Malezya'daki kullanıcıların tutumları, memnuniyeti ve tekrar kullanma niyetine etkisini araştırmış ve karar alma sürecinde ITFR'yi yeniden kullanma tutumu, memnuniyeti ve niyeti ile güçlü bir ilişkisi olduğunu belirlemiştir. Hodge ve Pronk (2006), profesyonel ve profesyonel olmayan yatırımcıların çeşitli çevrimiçi finansal bilgiler kullanıp kullanmadıklarını ve kullandıkları bilgiler ile yatırımcıların yatırıma aşinalıkları arasında doğrudan bir ilişki olup olmadığını incelemiştir. Bulgular, profesyonel kullanıcıların pdf formatında yayınlanan finansal tablolara güvenmeyi, profesyonel olmayan kullanıcıların ise yöneticilerin html biçiminde aldığı sonuçları tercih ettiklerini göstermiştir. ...
Nowadays, with the rapid development of internet technology, companies can carry out their financial reporting
activities in real time on the internet in an easy and wide area. Companies publish their financial information on
their websites, allowing users to search, filter, download, and even reconfigure such information at low cost and
on time. Internet based financial reporting (ITFR) is known as internet financial reporting (IFR). In this study,
Internet-based financial reporting (ITFR) will be used. ITFR can be defined as the presentation of both financial
and non-financial information about the businesses over the internet. The purpose of this study is to measure the
level of internet-based financial reporting (ITFR) of companies in developing countries and the level of meeting
the expectations of investors. It is also to make a general opinion about the equivalence of developing countries'
firms across the country and other countries. In this study, the largest companies of the countries were selected in
order to be a good indicator for the current and future situation of the countries. Variables in this study were
examined using a checklist of 40 items. ITFR score obtained by companies has a nearly equal value ranging from
49% to 91% with the total maximum score of 100% and average score of 77%.
... These primary characteristics considered here are domain expertise (i.e., non-professionals vs professionals) and domain knowledge (i.e., visualization knowledge, tasks-specific experience, accounting or auditing knowledge). Relative to domain expertise, non-professional investors attract much attention because of their particular characteristics: their inexperience (Pinsker, 2007), their limited knowledge of financial information (Maines & McDaniel, 2000), and their reliance on simplified information (Hodge & Pronk, 2006). The use of IDIV is credited with improving non-professional investors' decisionmaking ability. ...
Background: Interactive data and information visualization (IDIV) enhances information presentations by providing users with multiple visual representations, active controls, and analytics. Users have greater control over IDIV presentations than standard presentations and as such IDIV becomes a more popular and relevant means of supporting data analytics (DA), as well as augmenting human intellect. Thus, IDIV enables provision of information in a format better suited to users' decision-making.
... Regarding institutional investors, Wade and Forbes (2000) reported that up to 75% of investors reviewed corporate websites before meeting with the management of a company. Research by Hodge and Pronk (2006) provided evidence that corporate websites had also become an important source of information for information intermediaries such as financial analysts. Using respondents from South Africa, a national online survey conducted in 2012 showed that 217 out of 352 respondents would prefer to obtain their investment information from the internet in future (Rensburg and Botha, 2014). ...
This study examines the link between the use of websites and annual reports as communication channels. The first objective was to assess the extent to which companies rely on their websites. For the purpose of this study, ‘reliance’ was operationalised as the extent to which companies rely on their websites as a supplementary information source to their annual report (measured as the number of times annual report readers are referred to the company’s website for additional information). It appears that companies mainly refer readers of their annual report to their websites for further information about corporate governance-related issues. The second objective was to ascertain whether an association exists between companies’ reliance on their website as a supplementary source of information and investors’ ability to find such ‘promised’ information (presentation-related attributes). A positive correlation was found between companies’ reliance and a website score consisting of eight presentation-related attributes. The third objective was to explore the determinants of companies’ reliance. It seemed that larger companies, companies with higher debt levels and companies from specific industries were more reliant on their websites as a supplementary source of information. The results emphasise how important it is for companies and regulators to understand the drivers and benefits of staying abreast of technological developments – more specifically, for companies in developing their communication strategies, and for regulators in updating reporting standards and regulations.
... Internet Financial Reporting (IFR) disclosure has become an established and significant communication platform for firms (Bollen, Hassink & Bozic 2006;Drake, Thornock, & Twedt 2017;Hodge & Pronk 2006) due to the rapid growth of internet technology (Chan & Wickramasinghe 2006;Momany & Al-Shorman 2006). IFR disclosure offers various benefits in terms of flexible presentation and provide space for abundant content apart from able to reach wider audience which will benefit firms and stakeholders, likewise (Trabelsi, Labelle & Laurin 2004;Quagli & Riva 2005). ...
... IDV and task-technology fit Ajayi (2014) examines IDV, non-professional investors' characteristics, and task environment, and finds that, while presentations' interactivity enhances how IDV fits, the visualisations of the presentations they have little influence on it. Following TTF theory, and given that non-professional investors are likely to want to lessen task complexity, we expect that the information enhancements permitted by IDV will better support non-professional investors (Hodge and Pronk 2006). We contend that IDV, by improving fit between tasks, non-professional investors' characteristics, and the task environment, can improve non-professionals' performance accuracy. ...
The volume of freely available accounting information is rapidly becoming overwhelming. To be useful, information needs to be delivered to users in a suitable, relevant, and understandable form. Interactive data visualisation (IDV) can help address this need for useful information by organising accounting information, especially financial reports, into forms with these qualities. Given both their prevalence and their likelihood of being future users of IDV, the purpose of this research is to examine the appropriateness of IDV for non-professional investors’ use when they access accounting information. This research uses a 2 × 2 experimental approach involving 404 participants representing non-professional investors from diverse demographic backgrounds. This research suggests that IDV mitigates non-professional investors’ restricted investment capabilities by presenting information that is more salient, thus reducing non-professional investors’ cognitive effort. This combination allows such investors to better perform both simple and multipart investment tasks. By integrating three information systems’ fit perspectives (i.e. task technology, information quality, and cognitive), this research explains IDV’s suitability and fit within the accounting domain. We also discuss how the findings can inform practice and span interdisciplinary research into data and information visualisation.
... In recent years, several papers have pointed out the benefits of presenting financial information over the Internet in comparison with traditional printed reports. (Lymer et al., 1997, Ashbaugh et al., 1999, Oyelere et al., Smith, 2003Fisher et al., 2004;Hodge et al., 2006;Wagenhofer, 2003). Emphasizing benefits for stakeholders, the authors put special emphasis on cost reduction and cost-effectiveness of data acquisition, greater dynamics and flexibility of reports in the desired format, making them available to all users, both nationally and internationally (Ashbaugh et al., 1999;Allam et al., 2003;Lymer, 1999;). ...
The aim of this paper is to analyse the level of digitalized financial reporting process in local governments of three different Montenegrin geographic regions and to estimate the level of harmonization with the modern achievements in the domain of computerization of accounting systems. For that purpose, two research approaches (direct insight and survey) are used to examine the general hypothesis. This hypothesis states that the digitalization of financial reporting in different regions in Montenegro depends on the level of the accounting culture of companies, but also on their size, activities and normative acts. The fact that similar research has not been previously conducted in Montenegro, or in the neighbouring countries, which makes this study an original contribution.
... IDV likely permits nonprofessional investors to avoid complex cognitive effort required to integrate multiple pieces of information prior to making decisions. Recall, they also prefer to use filtered information rather than unfiltered information (Elliott, Hodge, & Jackson, 2008;Hodge & Pronk, 2006). IDV, therefore, helps mitigate this non-integration tendency and enhances non-professional investors' ability to arrive at better decisions, more akin to those made by their professional counterparts. ...
As part of business analytics (BA) technologies, reporting and visualization play essential roles in mitigating users’ limitations (i.e., being inexperienced, having limited knowledge, and relying on simplified information). Reporting and visualization can potentially enhance users’ sense-making, thus permitting them to focus more on the information’s message rather than numerical analysis. To better understand the role of reporting and visualization in a contextualized environment, we investigate using interactive data visualization (IDV) within accounting. We aim to understand whether IDV can help enhance non-professional investors’ ability to make sense of foundational financial statement analyses. This study conducted an experiment using a sample of 324 nonprofessional investors. Our findings indicate that nonprofessional investors who use IDV are more heuristically adept than non-professional investors who use non-IDV. These findings enrich the theoretical understanding of business analytics’ use in accounting decision making. The results of this study also suggest several practical courses of action, such as promoting wider use of IDV and making affordable IDV more broadly available, particularly for non-professional investors.
... Several studies analyse how disclosures are perceived by investors. They conclude that the understanding of the relevance and reliability of information is different between the professional institutional investor and the private investor due to different skills and the ability to understand and use unfiltered information Elliott (1994; Hodge and Pronk (2006). R ...
... On the contrary, a body of literature reveals the investors' attributes of bounded rationality and limited information processing capacity. This view is fervently reinforced by the literature of psychology and studies have established the limitations of cognitive decision-making process (Hirst and Hopkins, 1998;Maines and McDaniel, 2000;Hodge and Pronk, 2006). ...
Purpose
The primary purpose of this study is to determine the impact of information ordering in Shariah Supervisory Board Report (SSBR) on investors’ behavior and perception about the performance of Islamic bank in terms of Shariah compliance and other conventional parameters.
Design/methodology/approach
The study used the belief adjustment model to evaluate the desired effects of ordering positive and negative information (if any) in SSBR of an Islamic bank. This study extends the previous literature on information ordering as a pioneer experimental study in emerging economies.
Findings
Evidence shows that investors and technical users of performance reports consider SSBR as significant for financial and investment decisions from the Islamic perspective. The results indicate that the primacy effect does exist and is statistically significant.
Practical implications
The SSBR provides the management with an excellent opportunity to communicate and convince the investors about Shariah compliance features of an Islamic bank. Additionally, it also highlights the functional use of impression management to manipulate the investor’ behavior and perception.
Originality/value
For the first time, this study specifically investigates the effect of conscious information ordering in SSBR of Islamic banks on investors perceptions and behaviors.
... Gosip di Media Social. Makin besarnya peran investor individu dan makin pentingnya peran gosip telah meningkatkan pemanfaatan wahana posting (investor dapat mendownload newsgroups, menjelajahi website, membuka blog, berlangganan mailing list, bergabung dengan message board, facebook, blackberry massager, whatspp, twitter, dan lain sebagainya) untuk mendapatkan gosip (Hodge and Pronk, 2006) atau cyber gossip (Wysocki, 1998). Hal ini ditandai dengan terus meningkatnya jumlah pesan yang dikirim (posting) oleh investor ke message board-situs tempat investor melakukan posting. ...
It isn’t easy to define whether a stock return is determined by a certain factor or trading days. There were many research evidence that some factors had influenced stock return. There were also, however, many researches on stock return anomaly providing the facts that stock return, especially their abnormal returns, were caused by specific trading days, such as week-day effect, January effect, and many others. This research attempts to explore this logic. We tested the impact of gossips that spreaded-out through social media, as a certain factor, and all trading days in a week to a stock return. We used the gossips in social media as response of the massive use of the internet in stock investment. The existence of the gossips is more strengthened by the existence of noise traders. Nowadays, noise traders use the internet, such as mailing list, message board, facebook, and others, that are called as social media, as a media to spread gossips. This research investigates whether gossips spreaded through mailing list have a role in mispricing, so then it can be used to determine the stock return. If they have the role, then how long is the persistence? To anticipate the impact of trading days, this research also includes trading days as a control variable. Using multivariate statistical technique and combined with event study with five windows (five days before and after a gossip has been posted), this research analyzes the stock return that gets the most gossips posted by investors. The result suggests that the gossips in social media don’t show significant influence on the stock return, and automatically no persistence exists. Based on that result, the conclusion is that the gossips in social media can’t be used to determine the stock return. The implication is that even social media can facilitate the stock transaction better, the investors in Indonesia Stock Exchange can’t exploit the gossips in social media for taking profit through behaving as noise traders.
... Research has shown that even when controlling for experience, decision makers often associate their high level of familiarity with expertise (Alba & Hutchinson, 1987;Zaichkowsky, 1985). Individuals who use expert-like decision processes tend to limit the use of information (Hutton & Klein, 1999;Shanteau & Stewart, 1992) by focusing attention on fewer case facts (Ebbesen & Konecni, 1975), concentrating only on (what are believed to be) key metrics (Hodge & Pronk, 2006), and limiting the alternatives to be considered (Reuber, 1997;Schwenk, 1984). We expect that the initiation of these expert-like decision-making mechanisms, when managers' country familiarity is high, will reduce cognitive effort. ...
Focusing on the initial stage of foreign market selection (i.e., narrowing a set of potential countries from which to make a final choice), we theorize that manager's country familiarity influences both the decision-making process and outcome. We hypothesize that with increasing country familiarity, (a) manager investment of cognitive effort (process) first increases and then decreases, and (b) the likelihood of a country being included for further consideration (outcome) also increases and then decreases. We further hypothesize that the effects of country familiarity are contingent on the managers' international experience. Empirical evidence from verbal protocol analyses of managers provides strong support to our arguments. These findings contribute to the emergent literature on the critical role of cognition in decision making about foreign markets. Manager cognition potentially influences sequential/ non-sequential entry decision making, possibly explaining some previously observed exceptions to internationalization process theory. The contingent role of international experience further stresses that the influence of cognition in internationalization decision making is both important and complex, involving, at least, innate cognitive processes, idiosyncratic knowledge, and international experience. We discuss the theoretical implications, along with practice implications, of country familiarity and intuitive decision making in foreign market selection.
... Several studies analyse how disclosures are perceived by investors. They conclude that the understanding of the relevance and reliability of information is different between the professional institutional investor and the private investor due to different skills and the ability to understand and use unfiltered information (Elliott, 1994;Hodge and Pronk, 2006). The law's specific target is to reform CG and it required the establishment of a reporting system that would increase the transparency of CG. ...
... Christensen et al. (2014) conducted an experiment with nonprofessional investors as decision makers, while Bedard et al. (2014) examined the market reaction, summarising the decisions of a wide range of investors that included professional and nonprofessional investors. Prior research also shows that nonprofessional and professional investors acquire and use information very differently (Frederickson and Miller 2004;Elliott 2006;Hodge and Pronk 2006). This may indicate that key audit matter paragraphs impact differently on professional and nonprofessional investors, which has important implications for the value of the additional disclosures in the audit report. ...
The International Auditing and Assurance Standards Board (IAASB) recently finalised several significant and controversial reforms of the audit reporting model. The reforms are in response to long-standing criticisms about the form and content of the existing audit report. This study critically examines the current audit report reforms and their implications. In particular, we investigate the perceptions of prominent stakeholders in respect of these reforms and then evaluate the implications of the reforms on the informational value of the audit report, audit quality and audit costs. The findings suggest that the changes to the audit report are of significant informational value to users, while the implications for audit quality are unclear. Indeed, the changes would increase audit costs and potentially the legal liability of auditors. This appraisal is timely given the efforts made by the IAASB in commissioning these reforms to enhance the relevance and informational value of the audit report.
... Beattie and Pratt (2003) examined five format types (PDF, HTML, XBRL, spreadsheet and word-processed) and found that user experience affects reporting format preferences. Similar findings were reported by Hodge and Pronk (2006), who tried to link user preference to digital reporting format. They examined two different types of reporting formats (PDF and HTML) and found that professional users preferred PDF, while novice users were more attracted to HTML. ...
Popular reporting is a means of bringing local government financial information closer to citizens. Nevertheless, the interest of citizens on popular reports appears to be less than optimal. In this paper, we assess whether the use of modern technology and the Internet could boost citizens' interest in popular reporting, which in turn would potentially motivate them to have a more active participation in public issues. More specifically, we examine whether the presentation format of a given popular report has different value to users. Our analysis is based on earlier works performed in relation to reporting formats in the private sector. For this purpose, we develop a concise popular report for a hypothetical municipality under three different formats (traditional PDF, flipping book and website) and we set up a questionnaire to evaluate an array of aspects namely completeness of information, clarity of information, visual appearance, navigation, usability, overall satisfaction and municipality image in each one of them. The questionnaire was answered by a sample of 165 respondents. The findings show that the website format outperforms the traditional ways of a popular report presentation in the majority of aspects examined. Therefore, this study provides collaborative evidence that the use of ICT as a means of making popular reports more attractive and useful to citizens would yield positive results with possible spillover effects to democratic participation.
... From the finance perspective the topic of how information is processed by investors and analysts is res earched (for example: DeBondt & Thaler, 1985& Thaler, , 1987Abarbanell & Bernard, 1992;Bradshaw, 2000;Fisher & Statman, 2000). In accounting the research issue is how accounting disclosure is used and what is the influence of accounting disclosure and different valuation methods on decisions made by financial statements users (Dyckman, 1964;Ball & Brown, 1968;Kida & Smith, 1998, Krishnan & Booker 2002Hodge & Pronk, 2006). Some authors try to put these to disciplines together and compare their results (Ricciardi, 2004;Breitkreuz, 2009;Bloomfield, 2011). ...
Information which financial market participants use to make their decisions comes directly and indirectly from accounting. Although finance and accounting use the language of numbers which appear to be very clear and plain, it is obvious that sums presented in financial statements and then interpreted and used by financial managers and investors and other stakeholders are very subjective. The goal of this chapter is to pay attention to the implications of behavioral research in accounting and its new stream – neuroaccounting – for behavioral finance. It is argued that accounting should be considered by behavioral finance researchers because the product of accounting in the form of reports, statements, and different analyses represents not only economic standing of a company, but also those behind the scenes.
We employ the elaboration likelihood model (ELM) to investigate the dual influences of the central route (i.e., argument quality) and the peripheral route (i.e., interactivity) on investment-related judgments and decisions. In a between-subject experiment using 297 participants from Amazon Mechanical Turk (MTurk) to proxy for nonprofessional investors, we examine the joint effects of interactivity, argument quality, and news valence. Our results indicate that nonprofessional investors are more likely to invest more in firms when the argument quality of a disclosure is strong and accompanied by interactive presentations. Further, PLS analyses examining perceptions of interactivity provide additional insights about the mechanisms of the effects. This research contributes to the disclosure literature by demonstrating the influence of increased interactivity in disclosure settings, and to the accounting information systems research on interactivity in financial reporting by demonstrating the importance of considering perceived interactivity in addition to the provision of actual interactive design features.
Staff at the U.S. Securities and Exchange Commission (SEC) conduct recurring reviews of firms’ filings to deter misconduct and facilitate investor access to high-quality information. We identify the names of SEC staff who work on a comment letter and examine whether their prior involvement (i.e., continuity) is associated with comment letter quality. Our results are consistent with continuity leading to lower-quality comment letters. Continuity is associated with fewer substantive comments, agreed-upon disclosure changes, and greater similarity between consecutive comment letter reviews. These results are consistent with continuity increasing staffs’ tendency to focus on familiar issues and overlook other areas of potential deficiencies. Time, changes in firms’ operations, and increasing staffs’ feelings of accountability can mitigate the negative effect of continuity on comment letter quality. Our study suggests benefits to a fresh perspective in regulatory monitoring.
JEL Classifications: G18; M41; M48.
This study examines GAAP effective tax rate (ETR) visibility as a distinct disclosure choice in firms’ financial statements. By applying a game-theory disclosure model for the voluntary disclosure strategies of firms, in a tax setting, we argue that firms face a trade-off in their ETR disclosure decisions. On the one hand, firms have an incentive to enhance their ETR disclosure when the ratio offers shareholders “favourable conditions”, for example, higher expected after-tax cash-flows. On the other hand, the disclosure of a favourable low ETR could attract the attention of tax auditors and the public and ultimately result in disclosure costs. We empirically test disclosure behaviour by examining the relation between disclosure visibility and different ETR conditions that reflect different stakeholder-specific costs and benefits. While we find that unfavourable ETR conditions are not highlighted, we observe higher disclosure visibility for favourable ETRs (smooth, close to the industry average, and decreasing ETRs). Additional analyses reveal that this high visibility is characteristic of firm years with only moderately decreasing ETRs at usual ETR levels, while extreme ETRs are not highlighted. Interestingly and in contrast to our main results, a subsample of family firms does not seem to highlight favourable ETRs.
The Internet has been an effective tool for the presentation of financial reports of companies in the field of
business and has become an alternative media used to disseminate information to its stake holders. This
alternative media is known as online financial disclosure (OFD) or internet financial reporting. Internetbased financial reporting (ITFR) is a rapidly growing phenomenon recently. Many companies around the
world publish their financial information online. Companies are of vital importance for the effectiveness of
the capital market as they disclose information through financial reports. This alternative media is a
paperless reporting system and is generally known as online financial disclosure (OFD) or internet financial
reporting. Online financial disclosure aims to reduce the information asymmetry of any firm. In this study, it
has been investigated what extent companies in developed countries can respond to the features that
investors are looking for on their web pages. In the study, one of the best companies of 24 developed
countries has been selected from Fortune 500 site. In the evaluation of these companies, variables consisting
of 40 items were used. By using these variables, an index has been created for each company and the indices
obtained from the companies are divided into total indices
This study investigates the differential effect of anger and fear on investors information search behavior. Based on theories from psychology, I predict that angry investors will seek out less additional information and exert a lower depth of thought than fearful investors after a negative earnings surprise. Additionally, I predict that these differences will be moderated in investors that exhibit higher levels of emotion management ability. Using an experiment, I find that neither anger nor fear had any effect on the number of additional information sources investors access. However, angry investors processed information less deeply than fearful investors. This is evident by significant differences in the amount of time spent reading additional information and the ability to recall details about the information. Finally, high emotion management ability reduces differences in depth of thought for both angry and fearful investors. The results of this study have implications for investors and researchers.
Using a novel pairwise measure of firms’ acquisition of rivals’ disclosures, we show that investment opportunities drive interfirm information flows. We find that these flows predict subsequent mergers and acquisitions as well as how and how much firms invest, relative to rivals. Moreover, firms’ use of rivals’ information often hinges on the similarities of their products. Our results suggest that rivals’ public information, far from being unusable, helps facilitate investment and product decisions, including acquisitions and product differentiation strategies. The findings also support a learning mechanism that could partly underlie the emerging literature on peer investment effects.
We survey a broad group of professionals who use financial statements as part of their job to assess the extent to which they believe financial reports suffer from disclosure overload. Consistent with the claims made by regulators, auditors, and preparers, we find that a significant portion of professional financial statement users believe disclosure overload is a problem. However, this group is in the minority, with about twice as many professional users believing that overload is not a problem and that more information should be disclosed in financial statements. This dichotomy presents a difficult challenge to standard setters aiming to improve financial reporting by altering the amount of information provided in financial reports. To that end, we complement existing research on the informativeness of accounting information by measuring perceptions of the usefulness of the various financial statements and their footnotes across a variety of tasks. Finally, we develop a framework that could be useful in developing a theory of disclosure overload.
This article is protected by copyright. All rights reserved.
Materiality remains a challenging concept for auditors to implement in practice. The challenges underlying auditor materiality assessments are compounded by the fact that courts, regulation, and professional standards emphasize that materiality should be based on a “reasonable investor” perspective. Despite the investor orientation and ambiguous nature of the “reasonable investor” criterion, the extant literature lacks empirical evidence about investor materiality judgments and decision-making. To address this problem, we model sophisticated and unsophisticated investors' materiality judgments in a policy-capturing study and compare them to experienced auditors charged with assessing materiality from an investor perspective. The results indicate significant differences in materiality judgments, judgment consensus, and cue utilization among the three participant groups. We conclude the paper with discussion of the study's implications, highlighting that the overall results suggest the need for further consideration of ways to help auditors meet standards and expectations in this critical domain.
We design income statement displays containing both annual data and sparklines of weekly data, and then test the ability of 138 accounting student subjects to detect experimental effects of only minimally material size when performing three tasks: anomaly detection; pattern recognition; and relating changes in one income statement item to another. Despite sparklines’ small size and low aspect ratios, subjects performed all three tasks successfully the majority of the time. Our results support the feasibility of using sparklines as a method of displaying large amounts of interim data in a compact form.
Purpose
eXtensible Business Reporting Language (XBRL) is an internet-based interactive form of reporting language that is expected to enhance the usefulness of financial reporting (Yuan and Wang, 2009). In the UK and the USA, XBRL is mandatory, and in Australia, it is voluntarily adopted. It has been reported that in the not too distant future, XBRL will be the standard format for the preparation and exchange of business reports (Gettler, 2015). Using an experimental approach, this study assesses the usefulness of financial reports with XBRL tagged information compared to PDF format information for non-professional investors. The authors investigate participants’ perceptions of usefulness in relation to the qualitative characteristics of relevance, understandability and comparability.
Design/methodology/approach
This paper uses an experimental approach featuring a profit-forecasting task to determine if participants perceive XBRL-tagged information to be more useful compared to PDF-formatted information.
Findings
Results reveal that financial information presented with XBRL tagging is significantly more relevant, understandable and comparable to non-professional investors.
Originality/value
The authors address a gap in the literature by examining XBRL usefulness in Australia where XBRL adoption will be mandated within the not too distant future. Currently, the voluntary adoption of XBRL by preparers and users is low, possibly, because of a lack of awareness about XBRL and its potential benefits. This study yields significant implications for the accounting regulators in creating more awareness on the benefits of using XBRL and to create an impetus for XBRL adoption.
We present experimental evidence that unsophisticated investors are better able to make judgments when operating expenses are disaggregated by nature. Disaggregated expenses on the face of income statements increase the salience of information about cost structures and operating leverages that usually disclosed in several parts of the financial statements and notes. The judgments are also affected by economic states. We infer that disaggregation contributes more on making judgments in economic expansion rather than in economic recession. Our results bring empirical evidence to joint FASB/IASB financial statement presentation project and standard setters to encourage consistent principles for the presentation format in financial statements between Chinese GAAP and IFRS.
Considerable research has examined how securities information, once accessed, is cognitively processed to arrive at buy, sell or hold decisions. In contrast, this paper examines whether training novice investors to simply apply the information accessing strategies used by better-performing security analysts, prior to actual cognitive processing of the information, would improve their performance. We obtain performance differences by comparing trained subjects who used the recommended strategies with untrained subjects. Notably, these differences emerged even during a significant market downturn during the simulation. Implications of the findings and directions for future research are discussed.
XBRL (Extensible Business Reporting Language) is an emerging technology that facilitates directed searches and simultaneous presentation of related financial statement and footnote information. We investigate whether using an XBRL-enhanced search engine helps nonprofessional financial statement users acquire and integrate related financial information when making an investment decision. We conduct our investigation in the context of recognition versus disclosure of stock option compensation. Our results reveal that many users do not access the technology, but those that do use it are better able to acquire and integrate information. Specifically, we find that when stock option accounting varies between firms, the use of an XBRL-enhanced search engine increases the likelihood that individuals acquire information about stock option compensation disclosed in the footnotes. We also find that XBRL helps individuals integrate the implications of this information, resulting in different investment decisions between individuals who use and do not use the search engine. Our results suggest that search-facilitating technologies, such as XBRL, aid financial statement users by improving the transparency of firms' financial statement information and managers' choices for reporting that information. Our results also reveal that wide publicity about the benefits of using search-facilitating technology may be needed to induce financial statement users to access the technology.
The purpose of this article is to review basic empirical results from the psychological literature in a way that provides a useful foundation for research on consumer knowledge. A conceptual organization for this diverse literature is provided by two fundamental distinctions. First, consumer expertise is distinguished from product-related experience. Second, five distinct aspects, or dimensions, of expertise are identified: cognitive effort, cognitive structure, analysis, elaboration, and memory. Improvements in the first two dimensions are shown to have general beneficial effects on the latter three. Analysis, elaboration, and memory are shown to have more specific interrelationships. The empirical findings related to each dimension are reviewed and, on the basis of those findings, specific research hypotheses about the effects of expertise on consumer behavior are suggested.
The Adaptive Decision Maker argues that people use a variety of strategies to make judgments and choices. The authors introduce a model that shows how decision makers balance effort and accuracy considerations and predicts which strategy a person will use in a given situation. A series of experiments testing the model are presented, and the authors analyse how the model can lead to improved decisions and opportunities for further research.
Prior research indicates that analysts' forecasts of earnings tend to be optimistic. Analysts' optimism may be attributed to experience, cognitive information search strategies, motivational incentives or some combination thereof. In this study, we conduct an experiment that uses a computerized eye-movement retinal imaging system to capture the cognitive search strategy of 60 professional financial analysts. We find that, within the experiment, more accurate analysts employ a directive information search strategy, whereas less accurate analysts employ a sequential search strategy. Experimental results also indicate that motivational incentives intensify the analysts' tendency to provide optimistic earnings forecasts. We also conduct an examination of the analysts' predictive accuracy outside the experimental setting. We find a significant relation between historical accuracy and the analysts' cognitive search strategy observed in the experiment. Post-experiment survey results provide insight into the linkage between specific accounting information used by the analysts and the accuracy of their forecasts.
Statement of Financial Accounting Standards (SFAS) No. 130 requires companies to report comprehensive income in a primary financial statement, but allows its presentation in either a statement of comprehensive income or a statement of stockholders' equity (Financial Accounting Standards Board [FASB] 1997). In an experiment, we examine whether and how alternative presentation formats affect nonprofessional investors' processing of comprehensive-income information, specifically, information disclosing the volatility of unrealized gains on available-for-sale marketable securities. The results show that nonprofessional investors' judgments of corporate and management performance reflect the volatility of comprehensive income only when it is presented in a statement of comprehensive income. We provide evidence consistent with our psychology-based framework that these findings occur because format affects how nonprofessional investors weight comprehensive-income information and not whether they acquire this information or how they evaluate it.
In this paper, we examine firms' use of the Internet to enhance the relevance of their financial reporting. We define a firm as practicing Internet Financial Reporting (IFR) when it provides in its web site either (1) a comprehensive set of financial statements (including footnotes and the auditors' report), (2) a link to its annual report elsewhere on the Internet or (3) a link to the U.S. Security and Exchange Commission's (SEC) Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. While 70 percent of the firms in our sample engage in IFR, we find substantial variation in the quality of firms' IFR practices. Specifically, the variations in quality pertain to the timeliness and therefore, the usefulness of firms' financial reporting on the Internet. We find that some firms provide more timely financial disclosures via the Internet (e.g., monthly sales) while other firms report outdated financial data (e.g., two-year old annual reports). We also observe that the usefulness of firms' financial reporting on the Internet depends on how easy it is to access that data, the amount of data disclosed and/or whether users can download or analyze the data.
To substantiate firms' incentives for engaging in IFR, we sent surveys to firms with web sites in our sample and asked them to report their perceived costs and benefits related to establishing an Internet presence. Firms responded to our questions about why they established an Internet presence by indicating that they perceive their web sites to be an important vehicle to disseminate information to shareholders. After documenting how and why firms use the Internet to voluntarily disclose financial information, we develop the implications of such practices for consumers who demand financial information, firms that supply financial data, auditors and market regulators.
This paper presents an experiment that examines the effect of pro forma earnings disclosures on the judgments of nonprofessional (i.e., less sophisticated) investors and analysts (i.e., more sophisticated investors). In the experiment, participants developed stock price assessments after reviewing background financial information and a current earnings announcement for a company. The earnings announcement was manipulated to report only GAAP earnings in one condition and both pro forma and GAAP earnings in the other condition. Consistent with empirical evidence, the pro forma earnings in our experiment exceeded GAAP earnings. The results indicate that nonprofessional investors who received an earnings announcement that contained both pro forma and GAAP disclosures assessed a higher stock price than did nonprofessionals who received an announcement containing only GAAP disclosures. Financial analysts' stock price judgments were not affected by the pro forma disclosures. Follow-up analyses suggest that analysts and nonprofessional investors used different valuation models and information processing. Analysts used well-defined valuation models, based on either earnings-multiples or cash flows, while the nonprofessional investors were more likely to use simpler, heuristic-based valuation models. The pro forma disclosure did not cause nonprofessional investors to assess a higher earnings number for determining a stock price, but rather caused nonprofessionals to perceive the earnings announcement as more favorable, which in turn caused them to convert earnings or some other performance metric into a higher stock price. This effect appears to be due to unintentional cognitive effects, rather than nonprofessionals relying on pro forma earnings information because they perceived it to be informative.
We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a good proxy for non-professional investors. To conduct our investigation, we categorize recent experimental studies in financial accounting based on the relative level of integrative complexity inherent in each study's task. We then conduct experiments using two tasks, one that is relatively low in integrative complexity and one that is relatively high in integrative complexity, and compare the responses of two groups of MBA students and non-professional investors. Our results suggest that using MBA students as a proxy for non-professional investors is a valid methodological choice, provided researchers give careful consideration to aligning a task's integrative complexity with the appropriate level of MBA student. MBA students who have completed their core MBA courses and are enrolled in or have completed a financial statement analysis course are a good proxy for non-professional investors in tasks that are relatively low in integrative complexity. Though less definitive, the majority of our tests also suggest that these students are a good proxy for non-professional investors in tasks that are relatively high in integrative complexity. However, care must be taken when using students in the first-year core financial accounting course. In tasks that are relatively low in integrative complexity, these students perform similarly to non-professional investors except when they are asked to make an investment decision. In tasks that are relatively high in integrative complexity, these students acquire information similarly to non-professional investors, but they do not appear to integrate the information in a similar manner.
In this paper we investigate the relationship between non-professional investors' information choices and their portfolio returns. We also investigate the role investing experience plays in this relationship. We find that non-professional investors earn lower returns as their use of unfiltered information (e.g., SEC filings) increases relative to their use of filtered information (e.g., Value Line analyst reports). We also find that investing experience mitigates this negative relationship. The latter result appears to be driven by investors' use of unfiltered (as opposed to filtered) information as they gain investing experience.
We extend the limited prior research on Internet financial reporting by providing insights into dissemination of two types of financial information at corporate Web sites. One type consists of reports that already have been filed with the SEC (i.e. required filings). The second type is all other (voluntary) information for investors. In doing so we investigate whether Web-based dissemination of both types of data can be explained by theories of incentives to voluntarily disclose information via more traditional means such as meetings or conference calls with analysts. We use regression analysis to test hypotheses that link the variation in the information disseminated through corporate Web sites to factors thought to influence voluntary disclosure of financial information. Presence of required items is significantly associated only with size and a proxy for information asymmetry, while voluntary information item disclosure is associated with variables proxying for size, information asymmetry, demand for external capital, and companies’ traditional disclosure reputations. Our results confirm that incentives motivating initial voluntary disclosure also explain the subsequent dissemination of voluntary material.
Rapid developments in information and communications technology have led organisations in many countries to consider the impact of the Internet on the delivery and dissemination of business information. This paper reports the findings of a UK study into the views of various user groups, preparers and auditors regarding specific proposals for change and newly emerging practices. Over 500 individuals from six groups responded to a questionnaire study, representing an overall response rate of 33%. Views were elicited regarding: (i) the desirability of different kinds of additional information that could be provided electronically, (ii) the usefulness of different navigation and search aids, and (iii) the portability of information under different formats.It is found that users favour many of the expansions of scope made possible by the web. A range of navigation aids, search aids and file formats are found by all groups to be at least fairly useful, especially global navigation aids. Preferences regarding file formats vary across the groups. Paired group comparisons show that, while expert and non-expert users hold similar views in relation to many issues, users' and preparers' views differ considerably. Auditors' views generally fall in between those of users and preparers. Cyert and Ijiri's (1974) framework is used to rationalise the observed conflicts and congruences of interest, underpinning clear pointers for policy-makers.
This study separates trading volume into buyer- and seller-initiated activities and examines the directional volume reaction in small and large trades to different types of earnings news. ‘Good’ (‘bad’) news triggers brief, but intense, buying (selling) in the large trades. However, a persistent period of unusually high buying activity is observed in the small trades irrespective of the news. This anomalous proclivity of small traders to buy is robust across firm size, trading volume, and different earnings expectation models. Several explanations are discussed, although the behavior does not seem fully explained by existing theories.
This article examines the decision making processes of professional financial analysts who are screening prospective investments. The analysts were provided with a package of financial materials that reflected the magnitude and the types of information that they normally review. They were asked to verbalize “whatever came to mind” during their evaluation. The resulting transcripts, called protocols, formed the basis for the analysis.The protocol analysis produced a descriptive model of the financial screening process, including the identification of the decision making processes, the decision rules, and the types of knowledge that are required to perform the task. Particular attention is given to factors that differentiate among individual analysts.
This article focuses on a Web Site Design Model for Financial Information. It is generally accepted that the Internet has spawned a marketing revolution, providing improved methods for communicating with and selling to customers. Many corporations use their Web sites to disseminate information about their financial performance. In the context of financial, information, literature the author from the National Investor Relations Institute (NIRI) suggests that investor relations officers explicitly view their activities as a means of marketing their firms securities by disseminating financial information. The study suggests that companies select data items to be presented on their Web sites determined by the relative sophistication of their particular user base. Specifically, analyses indicate the information provided at Web sites varies with companies levels of analyst following and retail ownership. Higher levels of analyst following are associated with relatively objective, more extensive data and higher levels of retail ownership are associated with relatively subjective, more abbreviated information.
This paper analyses the use of the Internet to present financial information by Austrian companies listed in the most liquid market segment of the Vienna Stock Exchange. The study covers two points in time, end of December 1997 and 1998, respectively. The scores of the companies are analysed across firms and over time, and Austrian firms' scores are compared to those of the German DAX 30 companies. Hypotheses related to the costs and benefits of information are tested. The results show for Austria that larger companies and companies with higher percentage of free float score higher.
This paper describes the current (July 1998) level of usage of Internet communication technologies by Spanish quoted companies for communication of financial and other information to interested parties. First, in order to place the communication activity in context, the current extent of Internet access in Spain is described. Second, a study of the websites which have been established by Spanish companies quoted on the Madrid Stock Exchange is reported. Finally, the paper discusses the actual and potential development of the Internet as a means of establishing 'corporate dialogue' (Spaul, 1997) with stakeholders.
In this paper, the role of the Internet as an instrument for investor relations activities is addressed. The empirical study compares the Internet investor relations activities of US, UK and German corporations. A sample comprising the respective country's relevant stock market 100 index (S&P, FTSE, DAX) is used. The authors find that, in the USA, investor relations via the Internet is more common and offers more features than in the other two countries. Although Internet technology offers a variety of possibilities to communicate with investors, the possibilities are only used partially in all three countries.
This paper examines the extent of financial information disclosure on the Internet by the largest companies in the UK in 1998. Companies were surveyed to establish whether they had a website and if so whether financial information was available. We also investigated whether that information was in summary form or whether the full annual report was available. This study finds a statistically significant positive relationship between the size of a company and the use and extent of disclosure on the Internet. There was no significant association between industry type and disclosure.
Responding to the widespread adoption of the Internet and the rapidly growing demands for information from stakeholders, corporations around the world are using the Internet for business and financial disclosures. Internet reporting has the benefits of low cost, wider reach, frequency and speed. Despite these benefits Internet reporting varies across companies and across countries. We study Internet financial reporting (IFR), in particular the presentation and content of IFR, of 660 large companies in 22 countries to identify the firm, and environmental determinants of IFR. The study revealed that firm size, listing on US stock exchanges and technology were firm specific determinants of IFR. Given that IFR is not just about the content of disclosure, but also about employing new presentation methods, the environment of disclosure was included in the research. The overarching disclosure environment of a country was found to be an important environmental driver for IFR presentation and less strongly for IFR content. The presentation aspect of IFR was more associated with the identified determinants than the content of IFR, which suggests that Internet presentation technologies were more related to the determinants than the content of the reports on the company Web sites.
Given the lack of unequivocal findings on person-career fit, this investigation aims to gain insight into the role of cognitive styles in understanding students’ career preferences by two complementary studies. In study 1, we examined whether students (n = 84) with different cognitive styles differ in their entrepreneurial attitudes. Results showed a strong positive correlation between the creating style and the overall occupational status choice index, which implies a preference to become self-employed. No significant correlations were found between this index and the knowing and the planning style respectively. A more detailed look at the occupational status choice sub-indexes showed a positive correlation for the knowing style with the ‘economic opportunity’ index, for the planning style with ‘security’ and ‘participation in the whole process’, and for the creating style with ‘career’, ‘challenge’, ‘economic opportunity’, ‘autonomy’, ‘authority’, and ‘self-realisation’. No significant differences in overall occupational status choice were found in terms of gender, degree option, or family background in entrepreneurship. Study 2 focused on the link between students’ career anchors and their cognitive styles and personality profile (n = 275). We found for the knowing style a positive correlation with ‘pure challenge’, for the planning style a positive correlation with ‘lifestyle’ and ‘security/stability’ and a negative one with ‘autonomy/independence’, and for the creating style a positive correlation with ‘entrepreneurial creativity’ and ‘pure challenge’ and a negative one with ‘security/stability’. Hierarchical regression analyses showed that cognitive styles and personality traits could predict people’s career anchors to a certain extent. These findings are particularly relevant for career counselling services of higher education institutions and for selection and recruitment policies of organ
Project Updates: Conceptual Framework (a joint project with the IASB)
Financial Accounting Standards Board (FASB). 2005. Project Updates: Conceptual Framework (a
joint project with the IASB) (July 8). Norwalk, CT: FASB.
Judgement and Choice
- R Hogarth
Hogarth, R. 1980. Judgement and Choice. Chircester, England: John Wiley & Sons.
“Who Is the American Shareowner?”
- A Ritt
Ritt, A. 2004. ''Who Is the American Shareowner?'' Better Investing (January): 28-33.
Investor Information Needs and the Annual Report
- Sri International
SRI International (1987). Investor Information Needs and the Annual Report. Morristown, NJ: Financial Executives research Foundation.
“The Use of Accounting Information: Expert vs. Novice Behavior”
- M Bouwman
Bouwman, M. 1982. ''The Use of Accounting Information: Expert vs. Novice Behavior.'' In Decision
Making: An Interdisciplinary Inquiry. Edited by G. Ungson and D. Braunstein, 134-167.
Boston, MA: Kent.
Investor Relations Departments Continue to Ignore Individual Investors
- J Scherr
Scherr, J. 2002. ''Investor Relations Departments Continue to Ignore Individual Investors.''
www.WhisperNumber.com (accessed on November 29).
Internet-based Financial Reporting; An Experimental Analysis of the HTML vs. PDF Decision”. Working paper
- J Gassen