Are Investors Warned by Disclosure of Conflicts of Interest? The Moderating Effect of Investment Horizon

The Accounting Review, Forthcoming

Posted: 8 Aug 2019 Last revised: 25 Nov 2019

See all articles by Yuanyuan Liu

Yuanyuan Liu

Xi'an Jiaotong University (XJTU)

Zhongwei Huang

Fudan University - School of Management

Like Jiang

University of Melbourne - Faculty of Business and Economics

William F. Messier, Jr.

NHH Norwegian School of Economics

Date Written: November 21, 2019

Abstract

Financial analysts are required to disclose conflicts of interest (COI) in their research reports, but there is limited evidence on the effectiveness of COI disclosures. We investigate whether the influence of disclosing COI in analyst reports on investors' decision making depends on investment horizon. Experimental results show that short-term investors who view a COI disclosure are significantly less willing to invest in the recommended stock compared to short-term investors who do not view such a disclosure, while the presence of a COI disclosure does not significantly affect long-term investors’ willingness to invest. Results further demonstrate that the COI disclosure decreases short-term investors’ willingness to invest by reducing their perception of analysts’ trustworthiness and expertness. This study provides evidence on when and how the COI disclosure can influence investors’ behavior and enhances our understanding of investors’ reactions to cautionary disclaimers.

Keywords: Conflicts of interest, Construal level theory, Analyst reports, Investment horizon

JEL Classification: M41

Suggested Citation

Liu, Yuanyuan and Huang, Zhongwei and Jiang, Like and Messier Jr, William F., Are Investors Warned by Disclosure of Conflicts of Interest? The Moderating Effect of Investment Horizon (November 21, 2019). The Accounting Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3432838 or http://dx.doi.org/10.2139/ssrn.3432838

Yuanyuan Liu

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Zhongwei Huang

Fudan University - School of Management ( email )

No. 670 Guoshun Road
Shanghai, 200433
China

HOME PAGE: http://huang-zw.github.io

Like Jiang (Contact Author)

University of Melbourne - Faculty of Business and Economics ( email )

Victoria, 3010
Australia

William F. Messier Jr

NHH Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway
678-386-8634 (Phone)

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