Chinese vs US investors’ reactions to accounting narratives: an experiment

• Published in: Asian review of accounting 2017-01, Vol.25 (4), p.526-548
• Main Authors: Yen, Alex C, Riley, Tracey J, Liao, Peiyu
• Format: Article
• Language: English
• Subjects: Accounting; Administrative expenses; Annual reports; Antitrust; Balance sheets; Cultural differences; Culture; Disclosure; Experiments; Financial reporting; Hypotheses; Information processing; Investments; Investors; Language; Linguistics; Litigation; Narratives; Readability; Studies; Traditions; Working capital
• ISSN: 1321-7348; 1758-8863
• DOI: 10.1108/ARA-12-2016-0144

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.