The Effect of Investor Sophistication on the Influence of Nonfinancial Performance Indicators on Investors’ Judgments

18 Pages Posted: 4 Jun 2010

See all articles by Paul Coram

Paul Coram

University of Adelaide - Business School; Financial Research Network (FIRN)

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Abstract

This paper presents an experiment that examines how enhanced disclosure of nonfinancial performance indicators affects the stock-price estimates of nonprofessional and professional investors. Participants were provided with a case study containing excerpts from a hypothetical company’s annual report. The experiment was a 2 (nonprofessional and professional) × 3 (positive nonfinancial performance indicators, negative nonfinancial performance indicators, and financial information only) between-subjects design. Consistent with conservatism, the nonprofessional investors underreacted in their stock-price estimates to the positive nonfinancial disclosures, compared with professional investors with task-specific knowledge. The results from this study suggest that the value of enhanced disclosure of this type may not flow equally to all users of financial reports, if conservatism, and lack of task-specific knowledge, adversely affect their decision-making.

Suggested Citation

Coram, Paul J., The Effect of Investor Sophistication on the Influence of Nonfinancial Performance Indicators on Investors’ Judgments. Accounting & Finance, Vol. 50, No. 2, pp. 263-280, June 2010, Available at SSRN: https://ssrn.com/abstract=1615754 or http://dx.doi.org/10.1111/j.1467-629X.2009.00328.x

Paul J. Coram (Contact Author)

University of Adelaide - Business School ( email )

10 Pulteney Street
Adelaide, South Australia 5005
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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