Chinese vs US investors’ reactions to accounting narratives: an experiment
Abstract
Purpose
The purpose of this paper is to investigate whether investor reactions to accounting narratives are uniform across cultures or if there are predictable systematic culture-based differences, particularly for investors from interdependent cultures, such as in Asia.
Design/methodology/approach
This research paper builds on the experiment conducted in Riley et al. (2014) by collecting data from investors from interdependent cultures and comparing their investment judgments to the “baseline” judgments of the investors from Riley et al. (2014).
Findings
In comparing independent and interdependent culture investors, a culture by construal interaction is observed. Whereas the independent culture investors in Riley et al. (2014) made less favorable investment judgments of a company with a concretely (vs abstractly) written negative narrative, this effect is attenuated for interdependent culture investors.
Research limitations/implications
This study extends the literature on accounting narratives by providing evidence that investors’ culture and linguistic characteristics of accounting narratives “interact,” suggesting that future studies in this area should account for culture as a variable. As for limitations, the independent and interdependent participant data were predominantly collected from different universities, so the differences observed may be due to institutional, not cultural differences. However, the populations are matched on key demographic measures.
Practical implications
The results have practical implications for investor relations professionals and international standard-setting bodies.
Originality/value
This study is believed to be the first to examine how investors’ culture may affect their reactions to the features of accounting narratives.
Keywords
Acknowledgements
The authors thank Thom Busby, Bryan Graden, Ben Luippold, Christine Nolder, Lou Orchard, anonymous reviewers, and workshop/brown bag participants at Merrimack College, Stonehill College, the University of Connecticut, the 2017 AAA Southeast Region Meeting, the 2015 AAA International Accounting Section Midyear Meeting, and the College of the Holy Cross Economics Department Summer Seminar Series for helpful comments and suggestions. The authors thank Shen-Xin Chen, Qi (Flora) Dong, Yingying Hao, and Manli Liang for research assistance; and Diana Bawn, Sebahattin Demirkan, Mohamed Gomaa, Ariel Markelevich, Paolo Petacchi, Mary-Joan Potvin, and Lew Shaw for their assistance in obtaining interdependent culture participants. The authors are also grateful for financial support provided by the Robert L. Ardizzone (‘63) Fund for Junior Faculty Excellence and the May and Stanley Smith Charitable Trust.
Citation
Yen, A.C., Riley, T.J. and Liao, P. (2017), "Chinese vs US investors’ reactions to accounting narratives: an experiment", Asian Review of Accounting, Vol. 25 No. 4, pp. 526-548. https://doi.org/10.1108/ARA-12-2016-0144
Publisher
:Emerald Publishing Limited
Copyright © 2017, Emerald Publishing Limited