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Managing impressions using distorted graphs of income and earnings per share: The role of memory

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  • Pennington, Robin
  • Tuttle, Brad

Abstract

This study investigates the role that memory plays in interpreting and using distorted graphs that mislead the user of the financial information. It draws upon the literatures concerning memory, impression management and effective graph design. In order to examine whether reliance on memory for distorted graphs leads to different impressions of the data, we conduct an experiment in which we manipulate the type of graph distortion and whether memory of the graph is required by the decision. We present evidence that individuals receiving misleading graphs are more likely to misinterpret underlying data trends and that memory moderates the effect depending upon the type of distortion used to mislead the individual. The resulting data interpretation errors lead to more positive judgments and investment decisions than would otherwise be warranted. Thus our findings suggest that graph distortions mislead users into incorrect conclusions about the underlying data and that these interpretation errors persist in memory and affect judgments and investment decisions. We extend the prior literature, which has not considered the direct effects of graph interpretation or the effects of memory, and provide a baseline for investigating the effects of memory on impression management.

Suggested Citation

  • Pennington, Robin & Tuttle, Brad, 2009. "Managing impressions using distorted graphs of income and earnings per share: The role of memory," International Journal of Accounting Information Systems, Elsevier, vol. 10(1), pages 25-45.
    • Handle: RePEc:eee:ijoais:v:10:y:2009:i:1:p:25-45
    DOI: 10.1016/j.accinf.2008.10.001
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    References listed on IDEAS

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    1. Kimberly D. Elsbach & Robert I. Sutton & Kristine E. Principe, 1998. "Averting Expected Challenges Through Anticipatory Impression Management: A Study of Hospital Billing," Organization Science, INFORMS, vol. 9(1), pages 68-86, February.
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    3. repec:bla:jfinan:v:53:y:1998:i:5:p:1775-1798 is not listed on IDEAS
    4. Braun, Kathryn A, 1999. "Postexperience Advertising Effects on Consumer Memory," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 25(4), pages 319-334, March.
    5. Jayne Godfrey & Paul Mather & Alan Ramsay, 2003. "Earnings and Impression Management in Financial Reports: The Case of CEO Changes," Abacus, Accounting Foundation, University of Sydney, vol. 39(1), pages 95-123, February.
    6. Childers, Terry L & Houston, Michael J & Heckler, Susan E, 1985. "Measurement of Individual Differences in Visual versus Verbal Information Processing," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 12(2), pages 125-134, September.
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    8. MacInnis, Deborah J & Price, Linda L, 1987. "The Role of Imagery in Information Processing: Review and Extensions," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 13(4), pages 473-491, March.
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    Cited by:

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    3. Chen, Xiaomeng Charlene & Hellmann, Andreas & Sood, Suresh, 2022. "A framework for analyst economic incentives and cognitive biases: Origination of the walk-down in earnings forecasts," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    4. Karin Eberhard, 2023. "The effects of visualization on judgment and decision-making: a systematic literature review," Management Review Quarterly, Springer, vol. 73(1), pages 167-214, February.

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