Does Coordinated Presentation Help Credit Analysts Identify Firm Characteristics?

38 Pages Posted: 29 Jul 2010 Last revised: 13 May 2014

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

Patrick E. Hopkins

Indiana University - Kelley School of Business - Department of Accounting

Kristina M. Rennekamp

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: July 26, 2010

Abstract

We present 60 experienced credit analysts with financial information for two firms: one that mainly outsources production and one that does not. We find that analysts are better able to identify firm characteristics that make an outsourcer more creditworthy when those characteristics are presented in the same general section of a financial report; either on the face of the financial statements or in the footnotes. Such coordinated presentation reduces the cognitive load necessary for integrating the related information and forming a meaningful mental model of each firm. Our results suggest that if standard setters are going to require more detailed disclosures, coordinated presentation of related decision-useful information in the same section of a firm’s financial report may benefit users, regardless of whether the information is recognized on the face of the financial statements or disclosed in the notes. Supplemental analysis cautions standard setters, however, to consider whether requiring more detailed disclosures provides an incremental benefit over how firm’s disclose information today.

Keywords: Financial statement presentation, classification, disaggregation, transparency, proximity, experiment, standard setting

JEL Classification: C91, G12, G18, M41, M44

Suggested Citation

Bloomfield, Robert J. and Hodge, Frank D. and Hopkins, Patrick E. and Rennekamp, Kristina M., Does Coordinated Presentation Help Credit Analysts Identify Firm Characteristics? (July 26, 2010). Johnson School Research Paper Series No. 14-2011. Available at SSRN: https://ssrn.com/abstract=1650906 or http://dx.doi.org/10.2139/ssrn.1650906

Robert J. Bloomfield (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

450 Sage Hall
Ithaca, NY 14853
United States
607-255-9407 (Phone)
607-254-4590 (Fax)

Frank Douglas Hodge

University of Washington - Michael G. Foster School of Business ( email )

Paccar Hall 540, Box 353200
Seattle, WA 98195-3200
United States
206-616-8598 (Phone)
206-685-9392 (Fax)

Patrick E. Hopkins

Indiana University - Kelley School of Business - Department of Accounting ( email )

Kelley School of Business
1309 E. 10th Street
Bloomington, IN 47405
United States
812-855 2617 (Phone)
812-855 8679 (Fax)

Kristina M. Rennekamp

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

401P - Sage Hall
Cornell University
Ithaca, NY 14853
United States
607-255-0500 (Phone)

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