Abstract

http://ssrn.com/abstract=1792796
 
 

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Unintended Consequences of Lowering Disclosure Thresholds


Kirsten Fanning


University of Illinois at Urbana-Champaign

Christopher P. Agoglia


University of Massachusetts at Amherst

M. David Piercey


University of Massachusetts Amherst

April 24, 2014

Accounting Review, Forthcoming

Abstract:     
In recent years, regulators have considered several initiatives to lower the threshold for disclosing risks to investors. We examine two ways in which disclosing more risks can actually lower investors’ perceptions of risk. Utilizing an experiment, we find evidence of two unintended consequences on different types of investors. First, we demonstrate that the addition of low-probability risks to a disclosure can dilute (rather than add to) more probable losses, leading certain investors to lower their perceptions of overall risk. Second, since lowering the threshold changes the overall composition of the disclosure by adding low-probability losses, firms could adopt a tactic of minimization that characterizes the entire disclosure as unimportant, presenting the lowest risks most saliently, using compliance with the low threshold as a plausible reason for giving a lengthy disclosure of generally unimportant risks. Our findings suggest that such a tactic can be persuasive.

Keywords: disclosure thresholds; dilution effect; persuasion tactics; investor judgment

JEL Classification: C91, M40, M41, M49

Accepted Paper Series


Not Available For Download

Date posted: March 27, 2011 ; Last revised: July 1, 2014

Suggested Citation

Fanning, Kirsten and Agoglia, Christopher P. and Piercey, M. David, Unintended Consequences of Lowering Disclosure Thresholds (April 24, 2014). Accounting Review, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1792796 or http://dx.doi.org/10.2139/ssrn.1792796

Contact Information

Kirsten Fanning
University of Illinois at Urbana-Champaign ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
217-300-1981 (Phone)
Christopher P. Agoglia (Contact Author)
University of Massachusetts at Amherst ( email )
Department of Accounting & Information Systems
121 Presidents Drive
Amherst, MA 01003-4910
United States
413 545-5582 (Phone)
413 545-3858 (Fax)
M. David Piercey
University of Massachusetts Amherst ( email )
Isenberg School of Management
121 Presidents Drive
Amherst, MA 01003
United States
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