Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs

Posted: 13 Jun 2019

See all articles by Elizabeth Blankespoor

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business

Ed deHaan

University of Washington - Michael G. Foster School of Business

John Wertz

University of Washington - Michael G. Foster School of Business

Christina Zhu

University of Pennsylvania - The Wharton School

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2019

Abstract

We investigate the frictions that impede individual investors’ use of accounting information and, in particular, their costs of monitoring and acquiring accounting disclosures. We do so using an archival setting in which individuals are presented with automated media articles that report both current earnings news and past stock returns. Although these investors have earnings information readily available, we find no evidence that their trades incorporate it. Instead we find that their trading responds to the trailing stock returns presented in the articles. Our study raises questions about the efficacy of regulations that aim to aid less sophisticated investors by increasing their awareness of and access to accounting information.

Keywords: information costs; information awareness; information acquisition; individual investors; earnings announcements; trading volume; automation

JEL Classification: D83; G12; G14; M41

Suggested Citation

Blankespoor, Elizabeth and deHaan, Ed and Wertz, John and Zhu, Christina, Why Do Individual Investors Disregard Accounting Information? The Roles of Information Awareness and Acquisition Costs (March 1, 2019). Journal of Accounting Research, Vol. 57, No. 1, 2019. Available at SSRN: https://ssrn.com/abstract=3395998

Elizabeth Blankespoor

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Ed DeHaan

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

John Wertz

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Christina Zhu (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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