Can Links to Source Financial Information Mitigate the Effect of Distorted Graphs?

43 Pages Posted: 23 Sep 2018

See all articles by Yibo (James) Zhang

Yibo (James) Zhang

Miami University of Ohio

Uday S. Murthy

University of South Florida - School of Accountancy

Lisa Milici Gaynor

University of South Florida - School of Accountancy

Date Written: September 1, 2018

Abstract

This study investigates whether using hyperlinks that connect summarized financial graphs with detailed financial statement information reduces the effect of graphical distortions on nonprofessional investors’ perceptions of firm performance. Using 385 participants from Amazon Mechanical Turk (M-Turk), we find that while distorted graphs do bias nonprofessional investors’ perceptions of firm performance, the provision and use of hyperlinks to the underlying source information eliminate those effects (i.e., de-bias). Using the dual-process theory of cognitive processing (Kahneman and Frederick 2002; Evans 2006, 2008), we find that hyperlinks enhance the overriding effect of System 2 processing (i.e., analytical processing) on System 1 processing (i.e., intuitive processing) and indirectly reduce the decision-biasing effect of distorted graphs on nonprofessional investors’ perceptions. The study contributes to standard setting as well as financial reporting practice by providing empirical evidence that the SEC’s policy guidance on implementing hyperlinks has benefits to nonprofessional investors. Second, it contributes to both the literature on distorted graphs and hyperlinks by suggesting hyperlinking to source data mitigates the effects of graphical distortions.

Keywords: Digital Annual Reports, Hyperlinks, Graphical Distortions, Dual-Process Theory, Nonprofessional Investors, Judgments and Decisions

Suggested Citation

Zhang, Yibo and Murthy, Uday S. and Gaynor, Lisa Milici, Can Links to Source Financial Information Mitigate the Effect of Distorted Graphs? (September 1, 2018). Available at SSRN: https://ssrn.com/abstract=3242754 or http://dx.doi.org/10.2139/ssrn.3242754

Yibo Zhang (Contact Author)

Miami University of Ohio ( email )

Oxford, OH 45056
United States

Uday S. Murthy

University of South Florida - School of Accountancy ( email )

Tampa, FL 33620
United States
813-974-6523 (Phone)
813-974-6528 (Fax)

HOME PAGE: http://www.coba.usf.edu/departments/accounting/faculty/murthy/index.html

Lisa Milici Gaynor

University of South Florida - School of Accountancy ( email )

4202 E. Fowler Avenue, BSN 3403
Tampa, FL 33620-5500
United States

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