Omission Bias within Corporate Reporting: Evidence from a Visual Experiment

• In Event: Stock Prices and Creditor Monitoring

Abstract

This study has examined the existence of a cognitive bias, named omission bias, in a corporate reporting setting. Omission bias refers to the human tendency to evaluate a wrongful omission (e.g. a deliberate omission of negative information) less harshly than a wrongful commission (e.g., the exaggeration or fabrication of positive information), although the consequences are often the same.
Two experiments which simulated corporate presentations given to accounting users were conducted. 168 participants with an accounting knowledge were involved in the first experiment and a subsample of 67 was involved in a second experiment.
Our study has pointed out that potential corporate stakeholders are affected by omission bias when evaluating the moral wrongness of misleading information. Users’ perception of ‘wrongful’ commissions and omissions does not seem to be affected by the lack of evidence about the preparer’s intentions to deceive. Omission bias also influences users’ preferences for regulatory intervention on firm disclosure. Omission bias persisted after training
Our study has important policy-making implications. Accounting users should be aware that their judgement is likely to be affected by an omission bias. Wrongful omissions, although perceived as less deceptive than wrongful commissions, may lead to a general lack of comparability and neutrality in corporate reporting and, thus, can negatively affect users’ judgements. Given the intransient nature of impression management caused by omission bias, policymakers shouldtake account of cognitive biases in users when regulating information.

Authors

• Michael Jones, University of Bristol

• Andrea Melis, University of Cagliari

• Simone Aresu, University of Cagliari