Are Investors Swayed by Vivid Graphical Presentations of Positive and Negative News in Digital Annual Reports?

• In Event: 1.02 Investor Judgment I

Abstract

After the SEC’s (2008) guidance on website disclosures, firms began providing digital annual reports with summarized financial performance graphs in a wide variety of formats. This study examines the effect of graphical vividness on nonprofessional investors’ impressions of management and firm performance when the financial performance news is either positive or negative. Conducting a 2 x 2 between-participants experiment with 470 participants from Amazon Mechanical Turk (M-Turk), I find that when the news is positive, nonprofessional investors have more positive impressions of management and firm performance when the graphical presentation is vivid versus pallid. In contrast, when the news is negative, presenting graphs vividly has little effect on nonprofessional investors’ impressions of management or firm performance. The study contributes to the regulators and practice by demonstrating that allowing a high degree of presentation flexibility (e.g., a high graphical vividness) on website disclosures has behavioral outcomes to nonprofessional investors’ judgments and decisions. The study also contributes to the financial disclosure literature by demonstrating the impact of graphical vividness in presenting financial performance information.

Author

• Yibo Zhang, Miami University