The Impact of Descriptor Identicalness on Investors’ Judgements of Managers’ Opportunistic Estimation Choices

59 Pages Posted: 29 Aug 2020 Last revised: 14 Mar 2024

See all articles by Ling L. Harris

Ling L. Harris

University of Nebraska at Lincoln

Elaine Wang

University of Massachusetts Amherst

Date Written: 2024

Abstract

We conduct two experiments to examine how descriptor identicalness influences investors’ assessments of managers’ opportunistic estimation choices. We manipulate the identicalness of descriptors (identical versus non-identical) and managers’ opportunistic estimation choices (more versus less opportunistic). We find that investors are better able to integrate information when managers use identical descriptors in their disclosures than when non-identical descriptors are used. We also find that investors who observe identical descriptors tend to make less favorable investment judgments when managers’ estimation choices are more (versus less) opportunistic, whereas those presented with non-identical descriptors are less likely to discern between more and less opportunistic estimation choices. Furthermore, our mediation results indicate that descriptor identicalness facilitates information integration, which moderates the impact of managers’ estimation choices on investors’ credibility assessments and subsequent investment judgments. Lastly, we measure investor sophistication and find that the interaction effect of managers’ estimation choices and descriptor identicalness is more pronounced when investors are more (versus less) sophisticated. Our findings have important implications for regulators, managers, and investors, shedding light on how investors use and incorporate accounting disclosures into their investment decision-making processes.

Keywords: Identical Descriptors; Opportunistic Estimation Choices; Narrative Disclosures; Investor Information Processing; Investor Sophistication

Suggested Citation

Harris, Ling and Wang, Elaine (Ying), The Impact of Descriptor Identicalness on Investors’ Judgements of Managers’ Opportunistic Estimation Choices ( 2024). Available at SSRN: https://ssrn.com/abstract=3650580 or http://dx.doi.org/10.2139/ssrn.3650580

Ling Harris (Contact Author)

University of Nebraska at Lincoln ( email )

730 N. 14th Street
Lincoln, NE 68588
United States
4024722337 (Phone)

Elaine (Ying) Wang

University of Massachusetts Amherst ( email )

Amherst, MA 01003-4910
United States
413-545-7613 (Phone)

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