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Moderating Effect of Error Source on the Continued Influence of Retracted Disclosure on Individual Investors’ Judgements

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  • Seet‐Koh Tan

Abstract

This study undertakes an experiment, in which Masters of Business Administration students participate as individual investors, to examine the impact of error sources (management versus press) on the continued influence of retracted disclosures. Given the increasing role of third parties in disseminating information, it is vital to examine the moderating effect of error source, a factor not previously emphasized in research on the continued influence effect. The results show that investors are more susceptible to the continued influence effect when the error is from the press (rather than from management), suggesting that individual investors should be more vigilant about the quality of information provided by external organizations. Additional analysis reveals that the differential effect found is mediated by the level of scepticism experienced by the participants. Unlike previous research, this study's results provide evidence that post‐exposure scepticism may moderate the continued influence effect under the conditions of task familiarity and clarity of actual error. Implications for regulators and researchers are also discussed.

Suggested Citation

  • Seet‐Koh Tan, 2022. "Moderating Effect of Error Source on the Continued Influence of Retracted Disclosure on Individual Investors’ Judgements," Abacus, Accounting Foundation, University of Sydney, vol. 58(4), pages 742-758, December.
    • Handle: RePEc:bla:abacus:v:58:y:2022:i:4:p:742-758
    DOI: 10.1111/abac.12263
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    References listed on IDEAS

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    1. Hun†Tong Tan & Seet†Koh Tan, 2009. "Investors' Reactions to Management Disclosure Corrections: Does Presentation Format Matter?," Contemporary Accounting Research, John Wiley & Sons, vol. 26(2), pages 605-626, June.
    2. Seet†Koh Tan & Hun†Tong Tan, 2008. "Effects of Exposure to Subsequently Invalidated Evidence on Judgements of Audit Workpaper Preparers and Reviewers," Contemporary Accounting Research, John Wiley & Sons, vol. 25(3), pages 921-946, September.
    3. Hackenbrack, K, 1992. "Implications Of Seemingly Irrelevant Evidence In Audit Judgment," Journal of Accounting Research, Wiley Blackwell, vol. 30(1), pages 126-136.
    4. Jennifer R. Joe, 2003. "Why Press Coverage of a Client Influences the Audit Opinion," Journal of Accounting Research, Wiley Blackwell, vol. 41(1), pages 109-133, March.
    5. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
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