Cross-Cultural Differences in Reactions to Accounting Narratives

• In Event: Narrative Disclosure and Readability

Abstract

In this paper, we extend prior research by Riley, Semin, and Yen (2014) on investor reactions to accounting narratives (such as earnings press releases), by examining whether their results, found with investors from an independent culture (the U.S.), hold for investors from interdependent cultures, such as East Asia. Research from social psychology suggests that interdependent cultures (relative to independent cultures) have a preference for and familiarity with concrete language, based on the prevalence of its use in person description and attribution in these cultures. If this cultural preference extends to the language in accounting narratives, the pattern of results observed in Riley et al. (2014) would not apply to investors from East Asia. We build on the experiment conducted in Riley et al. (2014) by collecting data from investors from interdependent cultures and comparing their investment judgments to the “baseline” judgments of the (independent culture) investors from Riley et al. (2014) and find results consistent with our predictions for the majority of our dependent variables. Our results, which demonstrate that culture and certain linguistic characteristics of accounting narratives interact, have implications for investor relations professionals, international standard-setting bodies, and researchers.

Authors

• Alex C Yen, College of the Holy Cross

• Tracey J Riley, Suffolk University

• Peiyu Liao, College of the Holy Cross