Numerical Formats within Risk Disclosures and the Moderating Effect of Investors’ Disclosure Management Concerns

50 Pages Posted: 9 Jun 2011

See all articles by Mark W. Nelson

Mark W. Nelson

Cornell University - Samuel Curtis Johnson Graduate School of Management

Kathy Rupar

Georgia Institute of Technology

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2011

Abstract

We provide experimental evidence that investors’ risk judgments are affected by the numerical format of sensitivity-analysis disclosures, with investors assessing higher risk in response to dollar-formatted disclosures than percentage-formatted disclosures. We also provide evidence that this effect is moderated by whether format is mandated or at the discretion of management. Specifically, investors respond to management discretion over numerical format by increasing risk assessments in response to percentage formats and decreasing risk assessments in response to dollar formats. In a second study we again support the moderating role of format discretion and provide evidence that the effect of discretion is not due to the extent of investors’ knowledge of alternative formats. Our results provide insight about the effects of current disclosure formats and suggest implications for managers who choose formats, investors who interpret formatted information, and regulators who consider whether to further prescribe the formats that are used in financial disclosures.

Keywords: numerical format effect, sensitivity analysis, risk judgment, earnings management, disclosure management, ratio bias

Suggested Citation

Nelson, Mark W. and Rupar, Kathy, Numerical Formats within Risk Disclosures and the Moderating Effect of Investors’ Disclosure Management Concerns (June 8, 2011). Johnson School Research Paper Series No. 30-2011. Available at SSRN: https://ssrn.com/abstract=1860348 or http://dx.doi.org/10.2139/ssrn.1860348

Mark W. Nelson (Contact Author)

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

448 Sage Hall
Ithaca, NY 14853
United States
607-255-6323 (Phone)
607-254-4590 (Fax)

Kathy Rupar

Georgia Institute of Technology ( email )

800 W Peachtree St NW
Suite 445
Atlanta, GA 30308-1149
United States
4043855713 (Phone)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
307
Abstract Views
1,927
rank
102,164
PlumX Metrics