Financial Estimates Against Investors’ Preferences: Anchoring, Denial and Spillover Effects

Published online in Accounting and Business Research (2017)

41 Pages Posted: 22 Aug 2017 Last revised: 24 Oct 2017

Date Written: October 23, 2017

Abstract

This experimental study investigates how the characteristics of an estimate in a sensitivity disclosure and the level of threat it presents to investors’ preferences interact to influence investors’ risk judgments. Firstly, I predict and find that variation in an estimate affects not only investors’ judgment on a related issue but also their future judgments on an unrelated issue. Secondly, I predict and find that investors are more sensitive to variations in an estimate when information contained in the estimate presents less threat to their preferred conclusions than when it presents greater threat. Finally, I predict and find that investors perceive more uncertainty regarding the association between the disclosed risk factor and the estimated financial reporting item in the estimate when the information presents greater threat.

Keywords: Experiment, Sensitivity Disclosure, Investor Judgment, Motivated Reasoning

JEL Classification: L2, M4

Suggested Citation

Arikan, Ozlem, Financial Estimates Against Investors’ Preferences: Anchoring, Denial and Spillover Effects (October 23, 2017). Published online in Accounting and Business Research (2017), Available at SSRN: https://ssrn.com/abstract=3017189

Ozlem Arikan (Contact Author)

Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

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