Topic:You Have Been Forewarned! The Effects of Risk Management Disclosures and Disclosure Tone on Investors’ Judgments
Speaker:Tan Hun-Tong, Professor of Accounting, Nanyang Business School Nanyang Technological University
Time:Monday, 25 June, 10:00-11:30
Location:Room 217, Guanghua Building 2
Unlike other regimes, extant SEC risk disclosure standards require the standalone disclosure of operating risk factors and do not permit the concurrent disclosure of risk management information. We experimentally examine whether the disclosure of risk management information alongside disclosed risks and the disclosure tone initially used by managers to warn about a risk jointly influence investors’ judgments of management responsibility when the disclosed risk materializes. We find that in the absence (presence) of risk management disclosures, investors attribute more (less) responsibility when management disclosed the risk using a less versus a more cautionary tone. Follow-up analyses reveal that our results are driven by the extent and type of counterfactual thoughts generated. Our findings have important implications for managers and regulators as they suggest that investors may unfairly penalize firms that make good faith risk disclosures in a more or less cautionary disclosure tone, even if these risks have been properly managed.
Professor Tan Hun Tong is the United Overseas Bank Chair and Professor of Accounting. His research interest focuses on understanding the judgment and decision making processes of preparers, users, and financial intermediaries of accounting information, and how institutional and environmental features influence such judgments and decisions. His work is characterized by the use of psychological theories and experimentation to gain insights into fundamental accounting issues.
He is currently editor of Accounting, Organizations and Society, and was former Associate Editor of Contemporary Accounting Research and Auditing: A Journal of Practice & Theory. He has served on various AAA committees, including the AAA Council, the AAA’s Notable Contributions to Accounting Literature Award Screening Committee, Auditing Section’s Research Committee, Research Advisory Committee, and the Notable Contribution to Auditing Literature Committee.
Hun-Tong has published in leading accounting journals such as The Accounting Review, Journal of Accounting Research, Contemporary Accounting Research, Accounting, Organizations and Society, and Auditing: A Journal of Practice & Theory, as well as major psychology journals such as Organizational Behavior and Human Decision Processes and Journal of Behavioral Decision Making. He serves on the editorial boards of The Accounting Review, Behavioral Research in Accounting, Contemporary Accounting Research, European Accounting Review, International Journal of Accounting, and Journal of Behavioral Decision Making.
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