Too Good To Be True! The Bifurcated Effect Of Strong Tone In Management Disclosures On Investors' Decisions

Keywords

Certainty; Management disclosure; MD&; A; Nonprofessional investors; Optimism; Tone

Abstract

Research has shown evidence of the use of impression management strategies in corporate disclosures as a means of presumably tempering and swaying investors' perceptions. These impression management strategies include shifts in the tone used when providing disclosures. However, recent research also provides evidence that such techniques can have a contrary effect when the tone of the message appears to be "too good to be true." This study explores how the use of optimism and certainty in the Management Discussion and Analysis (MD&A) portion of the annual report affects nonprofessional investors' investment decisions - a class of investors known to heavily rely on the MD&A portion of annual reports. We theorize a bifurcated effect where optimism and certainty have a positive and direct effect on investor willingness to invest, but at the same time optimism and certainty have a negative indirect effect on willingness to invest that is mediated through decreased perceptions of disclosure credibility. The results provide evidence supporting such a bifurcated effect from the use of tone in management disclosures.

Publication Date

1-1-2015

Publication Title

Advances in Accounting Behavioral Research

Volume

18

Number of Pages

1-31

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1108/S1475-148820150000018001

Socpus ID

84943258534 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/84943258534

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