IDEAS home Printed from https://ideas.repec.org/a/bla/ausact/v34y2024i2p178-186.html
   My bibliography  Save this article

Does Readability Improve Investors’ Understanding of Hedging Positions?

Author

Listed:
  • Wenhuan Liu
  • Yue Yan
  • Bin Li
  • Chaosha Yang

Abstract

Readability is a key issue in the presentation of hedging risk information. We use psychological theories and experiments to analyse and examine the effects of the readability of hedging risk and hedge effectiveness information on investors’ assessment of investments. We find that when hedging risk information presentation is more readable, investors’ judgement of the attractiveness of an investment is higher when hedging effectiveness is high than when hedging effectiveness is low. However, when hedging risk presentation information is less readable, there is no significant difference in their judgement of the attractiveness of an investment between two hedging effectiveness levels. Meanwhile, we further identify the mediation effects of the readability of hedging risk information on investors’ judgement of an investment's attractiveness. The findings of our study have significant implications for improving accounting information readability and enhancing accounting information quality.

Suggested Citation

  • Wenhuan Liu & Yue Yan & Bin Li & Chaosha Yang, 2024. "Does Readability Improve Investors’ Understanding of Hedging Positions?," Australian Accounting Review, CPA Australia, vol. 34(2), pages 178-186, June.
    • Handle: RePEc:bla:ausact:v:34:y:2024:i:2:p:178-186
    DOI: 10.1111/auar.12423
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/auar.12423
    Download Restriction: no
    File URL: https://libkey.io/10.1111/auar.12423?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hongkang Xu & Mai Dao & Jia Wu & Hua Sun, 2022. "Political corruption and annual report readability: evidence from the United States," Accounting and Business Research, Taylor & Francis Journals, vol. 52(2), pages 166-200, February.
    2. Koonce, Lisa & Leitter, Zheng & White, Brian J., 2019. "Linked balance sheet presentation," Journal of Accounting and Economics, Elsevier, vol. 68(1).
    3. Sophie Hoozée & Sophie Maussen & Perry Vangronsveld, 2019. "The impact of readability of corporate social responsibility information on credibility as perceived by generalist versus specialist readers," Sustainability Accounting, Management and Policy Journal, Emerald Group Publishing Limited, vol. 10(3), pages 570-591, June.
    4. Tim Loughran & Bill Mcdonald, 2014. "Measuring Readability in Financial Disclosures," Journal of Finance, American Finance Association, vol. 69(4), pages 1643-1671, August.
    5. Kristina Rennekamp, 2012. "Processing Fluency and Investors’ Reactions to Disclosure Readability," Journal of Accounting Research, Wiley Blackwell, vol. 50(5), pages 1319-1354, December.
    6. Li, Feng, 2008. "Annual report readability, current earnings, and earnings persistence," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 221-247, August.
    7. Xinshu Zhao & John G. Lynch & Qimei Chen, 2010. "Reconsidering Baron and Kenny: Myths and Truths about Mediation Analysis," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 37(2), pages 197-206, August.
    8. Guay, Wayne R., 1999. "The impact of derivatives on firm risk: An empirical examination of new derivative users1," Journal of Accounting and Economics, Elsevier, vol. 26(1-3), pages 319-351, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yaowen Shan & Sue Wright, 2024. "Insights for Senior Accounting Managers," Australian Accounting Review, CPA Australia, vol. 34(2), pages 99-100, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Umar, Tarik, 2022. "Complexity aversion when SeekingAlpha," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    2. Drago, Carlo & Ginesti, Gianluca & Pongelli, Claudia & Sciascia, Salvatore, 2018. "Reporting strategies: What makes family firms beat around the bush? Family-related antecedents of annual report readability," Journal of Family Business Strategy, Elsevier, vol. 9(2), pages 142-150.
    3. Samuel B. Bonsall & Brian P. Miller, 2017. "The impact of narrative disclosure readability on bond ratings and the cost of debt," Review of Accounting Studies, Springer, vol. 22(2), pages 608-643, June.
    4. Vismaya Gangadharan & Lakshmi Padmakumari, 2024. "Fogging the firm performance: an empirical examination of the annual report readability in India," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 21(2), pages 211-226, June.
    5. Chen, Chen & Hanlon, Dean & Khedmati, Mehdi & Wake, James, 2023. "Annual report readability and equity mispricing," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(3).
    6. Rjiba, Hatem & Saadi, Samir & Boubaker, Sabri & Ding, Xiaoya (Sara), 2021. "Annual report readability and the cost of equity capital," Journal of Corporate Finance, Elsevier, vol. 67(C).
    7. de Kok, Ties, 2019. "Essays on reporting and information processing," Other publications TiSEM 468fd12b-19c0-4c7b-a33a-6, Tilburg University, School of Economics and Management.
    8. Oz, Seda, 2024. "The impact of terrorist attacks and mass shootings on earnings management," The British Accounting Review, Elsevier, vol. 56(3).
    9. Efrim Boritz, J. & Hayes, Louise & Timoshenko, Lev M., 2020. "How understandable are SOX 404 auditors reports?," International Journal of Accounting Information Systems, Elsevier, vol. 39(C).
    10. Asay, H. Scott & Libby, Robert & Rennekamp, Kristina, 2018. "Firm performance, reporting goals, and language choices in narrative disclosures," Journal of Accounting and Economics, Elsevier, vol. 65(2), pages 380-398.
    11. Nicolás Gambetta & Laura Sierra‐García & María Antonia García‐Benau & Josefina Novejarque‐Civera, 2023. "The Informative Value of Key Audit Matters in the Audit Report: Understanding the Impact of the Audit Firm and KAM Type," Australian Accounting Review, CPA Australia, vol. 33(2), pages 114-134, June.
    12. Jaeschke, Reemda & Lopatta, Kerstin & Yi, Cheong, 2018. "Managers’ use of language in corrupt firms’ financial disclosures: Evidence from FCPA violators," Scandinavian Journal of Management, Elsevier, vol. 34(2), pages 170-192.
    13. Lisa Koonce & Zheng Leitter & Brian White, 2023. "The effect of a warning on investors’ reactions to disclosure readability," Review of Accounting Studies, Springer, vol. 28(2), pages 769-791, June.
    14. Michał Dzieliński & Alexander F. Wagner & Richard J. Zeckhauser, 2017. "Straight Talkers and Vague Talkers: The Effects of Managerial Style in Earnings Conference Calls," NBER Working Papers 23425, National Bureau of Economic Research, Inc.
    15. Soliman, Marwa & Ben-Amar, Walid, 2022. "Corporate social responsibility orientation and textual features of financial disclosures," International Review of Financial Analysis, Elsevier, vol. 84(C).
    16. Ewgenij Besuglov & Nils Crasselt, 2021. "The effect of readability and language choice in management accounting reports on risk-taking: an experimental study," Journal of Business Economics, Springer, vol. 91(1), pages 5-33, February.
    17. Jia, Jing & Li, Zhongtian, 2022. "Risk management committees and readability of risk management disclosure," Journal of Contemporary Accounting and Economics, Elsevier, vol. 18(3).
    18. Danial Hemmings & Lynn Hodgkinson & Gwion Williams, 2020. "It's OK to pay well, if you write well: The effects of remuneration disclosure readability," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(5-6), pages 547-586, May.
    19. Kuo Zhou & Xianghui Jin & Xinru Li & Yunqing Tao, 2024. "Enhancing sustainable development through effective disclosure: Corporate environmental performance and readability," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(1), pages 274-291, January.
    20. Yao, Yanzhen & Wei, Lu & Jing, Haozhe & Chen, Meiqi & Li, Zhan, 2024. "The impact of readability of risk disclosures in bond prospectuses on credit risk premium," Research in International Business and Finance, Elsevier, vol. 70(PA).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausact:v:34:y:2024:i:2:p:178-186. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=1035-6908 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.