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When Do Qualitative Risk Disclosures Backfire? The Effects of a Mismatch in Hedge Disclosure Formats on Investors’ Judgments by He, Yanan; Tan, Hun-Tong; Yeo, Feng; Zhang, Jixun is a Economics, Econometrics and Finance article available to read on EtoBox.

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Disclosure standards mandate the quantitative disclosure of hedging-instrument related risks but not the disclosure of hedged item related risks. We examine how a match (mismatch) in formats, caused by making quantitative (qualitative) hedged item disclosures alongside quantitative hedging instrument risk disclosures, affects investors' integration of information from these two related disclosures. Our first experiment varies the hedged item risk disclosure format (quantitative or qualitative) and the portion of risk hedged (small or large). We find that when disclosure formats are mismatched, the less comparable nature of the two disclosures caused investors to neglect their offsetting relationship when assessing net risks. As a result, risk and investment judgments were influenced by the more prominent quantitative hedging instrument disclosures. Our second experiment finds that the use of a qualitative debiaser that clarifies the relationship between the two disclosures led to the integration of information and mitigated this effect.

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Author

He, Yanan; Tan, Hun-Tong; Yeo, Feng; Zhang, Jixun

Publisher

Social Science Electronic Publishing; Publons; Research Square; Elsevier BV (ISSN 1556-5068)

Published

2018

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)