Accounting Seminar（2013-20）

Topic：How does Readability Influence Investors' Judgments? Consistency of Benchmark Performance Matters

Speaker: Bo Zhou,Shanghai University of Finance and Economics

Discussant:Lina Wu Le Luo , Peking University

Time:: Friday,20 December,14:00-15:30pm

Location:Room K01, Guanghua Building 2

Organizer:Department of Accounting, MPAcc GSM, PKU

Abstract：

We conduct two experiments to investigate how readability (high vs. low) and benchmark performance consistency (consistent vs. 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 guidance performance and trend performance are consistent with each other. In our main experiment, we manipulate the readability and valence of trend performance. Our results show that higher as opposed to lower readability of positive (negative) trend performance leads to more (less) favorable investors’ performance judgments when benchmark performance is inconsistent. 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 higher judgment on the firm’s future performance.

Your participation is warmly welcomed!