Disclaiming the Future: Investigating the Impact of Cautionary Disclaimers on Investor Judgments Before and After Experiencing Economic Loss

46 Pages Posted: 5 Mar 2015 Last revised: 6 Sep 2017

See all articles by H. Scott Asay

H. Scott Asay

University of Iowa - Department of Accounting

Jeffrey Hales

University of Texas at Austin - Department of Accounting

Date Written: September 5, 2017

Abstract

We examine how cautionary disclaimers about forward-looking statements affect investor judgments both before making an investment and after having suffered an investment loss. In our first experiment, a cautionary disclaimer appears to effectively communicate to nonprofessional investors that forward-looking statements may not be reliable, but we find little evidence that the disclaimer alters the extent to which forward-looking statements influence nonprofessional investors’ valuation judgments. In our second experiment, we shift our focus to ex-post judgments and find that the disclaimer influences the extent to which investors feel wronged and entitled to compensation after an investment loss, consistent with investors attending to the disclaimer and acting as if it were, ex ante, effective. Notably, investors continue to feel more wronged and entitled to financial compensation when available evidence suggests that management knowingly issued false or misleading forward-looking statements – even if disclaimed. Together, these results provide support for recent judicial efforts to erode the sweeping safe harbor provisions currently granted to companies..

Keywords: voluntary disclosure, forward-looking statements, cautionary language, safe harbor, investor judgments

Suggested Citation

Asay, Hamilton Scott and Hales, Jeffrey, Disclaiming the Future: Investigating the Impact of Cautionary Disclaimers on Investor Judgments Before and After Experiencing Economic Loss (September 5, 2017). Available at SSRN: https://ssrn.com/abstract=2573333 or http://dx.doi.org/10.2139/ssrn.2573333

Hamilton Scott Asay (Contact Author)

University of Iowa - Department of Accounting ( email )

S232 Pappajohn Business Building
Iowa City, IA 52242-1000
United States

Jeffrey Hales

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States
512-471-2163 (Phone)
512-471-3907 (Fax)

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