The Effects of Information Ordering on investor perception: an Experiment Utilizing Directors Report

Abstract

This study provides experimental evidence regardi ng t he existence of order effects related to the presentat ion of positi ve and negative qualitative information in annual reports . Specifically, the eff ect of information order in the Directors ' Report is examined. The Directors' Report in an annual report is an important vehicle for management to persuade investors that the company is a wo r t hwhile investment . Prior studies have shown both that managements manipulate information in Directors ' Report and that investors use the information in Directors ' Report in making investment decisions . Such usage has potential ramifications for corporate management and investors . This study e xtends prior research by examining whether the ordering of good news and bad news in a Directors ' Report could bia s investor perceptions . A hypothetical directors ' report was constructed utiliz i ng positive and negative pieces of information obtained f rom several actual directors ' report in annual reports . Two versions of the letter were constructed , both incl uding the same statements , but with the ordering of the pos i tive and negative components varied . The first version , hereafter termed "positive," included all the positive information about the company first , followed by the negati ve information . The second version , hereafter termed "negative , " included all the negative information fi r s t , followed by the positive information . This study was taken on the investors and brokers in Islamabad stock exchange . The reason behind this is that the people (Brokers and investors) sitting in the stock exchange are more experienced and can judge I predict the information given in directors ' report in more better way than the university students who do not have any practical exposure . The results indicate a primacy effect did not occur .