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Title: How does readability influence investors' judgments? Consistency of benchmark performance matters
Authors: Zhou, Bo
Tan, Hun-Tong
Wang, Elaine Ying
Keywords: DRNTU::Business::Accounting
Issue Date: 2015
Source: Tan, H.-T, Wang, E. Y., & Zhou, B. (2015). How does readability influence investors' judgments? Consistency of benchmark performance matters. The accounting review, 90(1), 371-393.
Series/Report no.: The accounting review
Abstract: We conduct two experiments to investigate how readability (high versus low) and benchmark performance consistency (consistent versus inconsistent) influence investors' judgments. Using prior management guidance and year-ago quarter performance as two benchmarks against which to assess actual earnings performance, we manipulate whether the valence of guidance performance (positive or negative) and the valence of trend performance (positive or negative) are consistent with each other. We also manipulate the readability of trend performance in our main experiment. Our results show that when benchmark performance is inconsistent, higher as opposed to lower readability of positive (negative) trend performance leads to more (less) favorable investors' performance judgments. This effect of readability is smaller when benchmark performance is consistent. We also show that higher readability in the inconsistent benchmark performance condition improves investors' understanding of the firm's current-quarter performance, which in turn influences their judgments on the firm's future performance. In a supplementary experiment, we manipulate the readability of guidance performance in an inconsistent benchmark performance setting, and replicate the key finding that higher readability of positive guidance performance leads to more positive judgment on the firm's future performance.
DOI: 10.2308/accr-50857
Rights: © 2015 American Accounting Association.
Fulltext Permission: none
Fulltext Availability: No Fulltext
Appears in Collections:NBS Journal Articles

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