Recognition Versus Disclosure in Financial Statements: Does Search-Facilitating Technology Improve Transparency?

Posted: 10 Dec 2002

See all articles by Frank D. Hodge

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

S. Jane (Kennedy) Jollineau

Chapman University - The George L. Argyros School of Business & Economics; University of Washington - Foster School of Business

Laureen A. Maines

Indiana University - Kelley School of Business - Department of Accounting; PricewaterhouseCoopers

Date Written: November 14, 2002

Abstract

Research suggests that investors and creditors react less strongly to information disclosed in footnotes than to information recognized on the face of financial statements, due at least in part to cognitive processing limitations. Emerging technologies (e.g., XBRL) that facilitate directed searches and simultaneous presentation of related financial statement and footnote information could potentially alleviate these limitations. We use an experiment to investigate whether the use of a search-facilitating technology affects how individuals react to recognition versus disclosure of stock option compensation. We find that the use of search-facilitating technology reduces differences in nonprofessional investors' financial performance judgments and investment decisions created by recognition versus disclosure. Additionally, we provide evidence that investors perceive greater differences in financial statement reliability between recognition and disclosure when they use search-facilitating technology. Overall, our findings suggest that search-facilitating technology improves the transparency of financial statement information and therefore may reduce incentives for firms to lobby for or to choose footnote disclosure to minimize the effects of negative information.

Keywords: recognition, disclosure, transparency, XBRL

JEL Classification: D82, M41, M45, O30

Suggested Citation

Hodge, Frank Douglas and Kennedy Jollineau, S. Jane and Maines, Laureen A., Recognition Versus Disclosure in Financial Statements: Does Search-Facilitating Technology Improve Transparency? (November 14, 2002). Available at SSRN: https://ssrn.com/abstract=351440

Frank Douglas Hodge (Contact Author)

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

Paccar Hall 540, Box 353200
Seattle, WA 98195-3200
United States
206-616-8598 (Phone)
206-685-9392 (Fax)

S. Jane Kennedy Jollineau

Chapman University - The George L. Argyros School of Business & Economics ( email )

333 N. Glassell
Orange, CA 92866
United States
206.227.7868 (Phone)

HOME PAGE: http://www.chapman.edu/our-faculty/jane-jollineau

University of Washington - Foster School of Business ( email )

Seattle, WA 98195-3226
United States
206.227.7868 (Phone)

Laureen A. Maines

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2611 (Phone)
812-855-4985 (Fax)

PricewaterhouseCoopers

1301 Avenue of the Americas
New York, NY 10019
United States

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