Asymmetric Investor Materiality and the Effects of Disclosure

SUMMARY We broaden our understanding of investor materiality, finding it to be asymmetrical for good and bad news. Motivated by legal and standards-based materiality definitions, we consider both participants' stated materiality limits and investment judgments, as well as the effect of auditors' materiality disclosures on those judgments. The study employs a 3 × 2 experiment manipulating materiality disclosure (high or low materiality number or no disclosure) and gain or loss subsequent events of equal magnitude. Absent disclosure, non-professional investors report lower materiality thresholds than typical auditor limits, and they exhibit lower materiality levels for bad news relative to good news both in their stated preferences and investment decisions. We find that disclosure reduces the distance between user and auditor materiality and eliminates the asymmetry in investors' stated materiality levels. However, disclosure fails to attenuate asymmetry in investment decisions, suggesting materiality preferences are “sticky” and difficult to affect through disclosure.

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Do Managers’ Nonnative Accents Influence Investment Decisions?

The Accounting Review ◽

10.2308/tar-2020-0228 ◽

2021 ◽

Author(s):

Leonardo P. Barcellos ◽

Kathryn Kadous

Keyword(s):

Investment Decisions ◽

Causal Chain ◽

Hard Work ◽

Bad News ◽

Good News ◽

Negative Stereotypes ◽

Positive Image ◽

Effortful Processing

Reactions to earnings calls are sensitive to subtle features of managers’ speech, but little is known about the effect of nonnative accents in this setting. Nonnative-accented CEOs may avoid holding calls in English for fear of investors’ negative stereotypes. However, theory indicates that stereotypes from the CEO position and nonnative accents conflict, and that the process of reconciling conflicting stereotypes requires effortful processing. We use a series of four experiments to test each link of the causal chain that we hypothesize based on this theory. We demonstrate that motivated investors reconcile conflicting stereotypes by inferring exceptional qualities, such as hard work and determination, that positively affect their impressions of nonnative-accented CEOs and, hence, of the company as an investment. We also show that, because bad news stimulates effortful processing, investors receiving bad (versus good) news are more likely to form a positive image of nonnative-accented CEOs and their companies.

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