Earnings-Announcement Narrative and Investor Judgment

43 Pages Posted: 8 Mar 2018

See all articles by Elaine Henry

Elaine Henry

Stevens Institute of Technology - School of Business

Marietta Peytcheva

Lehigh University

Date Written: February 28, 2018

Abstract

This study examines how emphasis framing in narrative disclosures, and the investor characteristics numeracy and persuadability, affect investors’ ability to discriminate between firms’ better and worse financial performance. In an experiment with 264 participants from the general population, we manipulate emphasis framing in earnings announcement narratives as neutral, consistent, or inconsistent with the firm’s performance. We find that investors are better able to distinguish between good and poor firm performance when the accompanying disclosure emphasizes information that is consistent with the firm’s performance. Further, persuadability reduces, but numeracy increases, investors’ ability to distinguish between good and poor performance. However, our results also indicate that the inclusion of biased numerical information in narrative disclosures may have a greater negative effect on higher numerates than on lower numerates, consistent with theory suggesting that more numerate individuals tend to focus on and draw affective meaning from numbers.

Keywords: earnings-announcement narrative, investor judgment, framing effects, emphasis framing, numeracy, persuadability

JEL Classification: M41

Suggested Citation

Henry, Elaine and Peytcheva, Marietta, Earnings-Announcement Narrative and Investor Judgment (February 28, 2018). Stevens Institute of Technology School of Business Research Paper. Available at SSRN: https://ssrn.com/abstract=3132444 or http://dx.doi.org/10.2139/ssrn.3132444

Elaine Henry

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Marietta Peytcheva (Contact Author)

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States
610 758 2818 (Phone)
610 758 5992 (Fax)

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