De-Biasing Scale Compatibility Effects When Investors Use Non-Financial Measures to Screen Potential Investments

40 Pages Posted: 30 Apr 2008

See all articles by Kevin E. Jackson

Kevin E. Jackson

University of Illinois at Urbana-Champaign - Department of Accountancy

Date Written: 2008

Abstract

Screening potential investments involves dividing a set of companies into those that are suitable to consider for investment and those that are less desirable (Kinder 2005). In this paper, I document that nonprofessional investors (represented by MBA students) are susceptible to scale compatibility effects when implementing an investment screen using non-financial measures. Such effects occur when investors rely more on a scale compatible non-financial measure whose values directly map into investors' judgments than on an equally relevant but scale incompatible measure whose values do not map into their judgments. Results from an experiment indicate that investors reduce their susceptibility to scale compatibility effects when they simultaneously screen several companies for potential investment. Because screening investments involves screening several companies, simultaneous screening represents an efficient mechanism to de-bias scale compatibility effects.

Keywords: Non-financial, nonprofessional investors, simultaneous judgment, scale compatibility, investment screen

Suggested Citation

Jackson, Kevin, De-Biasing Scale Compatibility Effects When Investors Use Non-Financial Measures to Screen Potential Investments (2008). Contemporary Accounting Research, Vol. 25, No. 3, 2008, Available at SSRN: https://ssrn.com/abstract=1126846

Kevin Jackson (Contact Author)

University of Illinois at Urbana-Champaign - Department of Accountancy ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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