The Decision Usefulness of Additional Fair Value Disclosures: One Disclosure Type Does Not Fit All Nonprofessional Investors’ Needs
by Theresa Herrmann (Author)

About the Author
Dr. Theresa Herrmann completed her doctoral study under the supervision of Prof. Dr. Maik Lachmann at the department of financial accounting and management control at Technische Universität Berlin.

About this book
Conducting an experiment Theresa Herrmann investigates why nonprofessional investors fail to incorporate disclosures on fair value estimates into their investment decision and what causes this exclusion. Differentiating between different types of disclosures and the development of the fair value (gain vsloss) the results indicate that with a fair value gain, none of the disclosure information increases decision usefulness, irrespective of the presentation formatWhen a fair value loss occurs, fair value disclosures presented in a salient presentation format decrease decision usefulness. Thus, investors have varying information needs that are strongly linked to the development of a firm’s key asset.

Table of content
List of abbreviations XIII
List of figures  XV
List of tables XVII
List of equations XIX
1 Introduction  1
    1.1 Motivation and scope 1
    1.2 General structure 5
2 Financial reporting for capital market participants 7
    2.1 Theoretical principles of accounting  7
    2.2 Design of accounting principles  8
    2.3 Accounting framework according to IFRS  11
        2.3.1 Objective and general purpose of financial reporting  12
        2.3.2 Qualitative characteristics of decision-useful financial statement information 15
            2.3.2.1 Main characteristics of decision-useful financial statement information 16
            2.3.2.2 Enhancing qualitative characteristics of decision-useful financial statement information  19
    2.4 Concept of fair value measurement as an attribute in financial reporting 22
        2.4.1 Valuation of investment properties  22
        2.4.2 Fair value measurement of investment properties 26
3 Differences in information needs and usage by capital providers  31
    3.1 Types of capital providers 31
    3.2 Equity investors  33
        3.2.1 Outside professional equity investors  33
            3.2.1.1 Information sources used by professional equity investors  34
        3.2.2 Private and retail equity investors 34
    3.3 Debt investors 36
    3.4 Information usage and differences in claims by capital providers  37
    3.5 Financial decision-making and stewardship roles  38
    3.6 Theories on information processing of capital market participants 40
        3.6.1 Key aspects of information processing  41
        3.6.2 Concepts of information processing  42
        3.6.3 Problem solving and decision heuristics 43
        3.6.4 Information processing strategies and decision-making of investors  44
        3.6.5 Actors on the capital market and information behavior  46
            3.6.5.1 Nonprofessional investors 48
            3.6.5.2 Professional investors 51
4 Theoretical background and predictions on facilitating the usage of disclosures for investors 53
    4.1 Investors’ information processing of fair value disclosures for investment decisions 53
        4.1.1 Types of fair value disclosures  53
        4.1.2 Incorporating fair value disclosures into the decision-making process 57
    4.2 Decision usefulness of fair value disclosures  62
        4.2.1 Relation between reliability and decision usefulness  62
        4.2.2 Differences in information processing 64
        4.2.3 How changes in fair value affect different types of disclosures  69
        4.2.4 Investment decisions of NPIs  75
        4.2.5 Summary of predicitions 76
5 Method 79
    5.1 Research design  79
        5.1.1 Experimental research strategies 79
        5.1.2 Internal and external validity of experiments  82
        5.1.3 Laboratory vsfield experiment 85
    5.2 Setting 86
    5.3 Participants 87
    5.4 Design  88
    5.5 Materials and procedure 89
6 Results  93
    6.1 Manipulation checks  93
    6.2 Hypotheses test 94
        6.2.1 Hypotheses on perceived reliability and decision usefulness  95
        6.2.2 Hypotheses on information processing  98
        6.2.3 Hypotheses on correlation between additional disclosures and reliability  111
        6.2.4 Hypotheses on investment decisions of NPIs  123
    6.3 Additional analysis 125
    6.4 Summary of results  126
7 Discussion  131
    7.1 Implications for research  131
    7.2 Implications for company practice and regulation 135
    7.3 Limitations and outlook  136
References  139
Supporting information  157
Appendix S1 Overview of information classification of disclosures according to IFRS 13 and IAS 40 159
Appendix S2 Experiment: Introductory pages  161
Appendix S3 Experiment: Envelope A 163
Appendix S4 Experiment: Envelope B 169
Appendix S5 Experiment: Envelope C 175
Appendix S6 Question overview  178

Series: Controlling und Rechnungslegung - Managerial and Financial Accounting
Length: 204 pages
Publisher: Springer Gabler; 1st ed 2019 edition (December 29, 2018)
Language: English
ISBN-10: 3658248319
ISBN-13: 978-3658248314