This study provides evidence that hyperlinking a firm's audited financial statements to unaudited information in a web-based environment leads investors to blend the unaudited information with the audited statements. I obtain evidence of this blending effect using an experiment where investors assessed a firm's earnings potential by evaluating the firm's audited financial statements and a subsequent optimistic unaudited letter to shareholders from the firm's management. Investors who viewed hyperlinked materials on the Web misclassified more unaudited information as audited and assessed the credibility of the unaudited information as higher than did investors who viewed hardcopy materials. Those investors who assessed the unaudited information as more credible also judged the firm's earnings potential to be higher. Notifying users with an “AUDITED/NOT AUDITED” label attenuated these effects. This evidence suggests that firms can influence financial report users' perceptions by hyperlinking unaudited information to information in their audited financial statements, and that a simple disclosure rule reduces this influence.

We conduct a field survey to investigate whether current mid-level and future entry-level managers (collectively managers) subjectively value stock options and restricted stock consistent with economic theory. We find that managers, on average, subjectively value stock options at greater than their Black-Scholes value and greater than fair-value equivalent restricted stock. This result contrasts with conventional economic wisdom that risk-averse employees discount the Black-Scholes value of an option. With respect to stock options, our results also reveal that managers, on average, have a lottery ticket mentality when subjectively valuing options, they value shorter vesting periods, and they value longer terms to maturity. With respect to stock options and restricted stock, we find that managers tend to extrapolate recently rising stock price trends to arrive at their subjective values. Overall, our results suggest that in some cases standard economic theory does not accurately reflect how managers appear to subjectively value stock options and restricted stock.

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), in their joint Financial Statement Presentation project, are reconsidering the basic format of financial statements. The Boards’ preliminary discussions related to this joint project indicate that they intend to modify the required financial statements to increase the proximity of performance‐related information for each reported period. We provide evidence related to this potential change by investigating the effects of financial statement information proximity on investors’ ability to learn the forecast‐relevant time series properties of reported cash flows and accruals. We also examine the role feedback plays in this relationship. Our experimental results suggest that nonprofessional investors are able to more quickly learn the relation between current period cash flows and accruals and future cash flow realizations when financial statement information is presented in a single statement rather than separated into two statements. In addition, we find that nonprofessional investors exhibit lower levels of absolute forecast errors and less forecast dispersion when financial statement information is unified into a single statement. Finally, we provide evidence that nonprofessional investors who receive extensive outcome feedback on a single page initially learn more quickly and later, after learning has leveled off, accurately forecast more consistently than do investors who receive extensive or limited feedback spread across two pages. Overall, our results provide evidence on the effectiveness of alternate financial statement presentation formats and the potential usefulness of receiving more extensive feedback.

We examine how CEOs can facilitate the development of investor trust that helps mitigate the effects of negative information. Results from an experiment show that investors trust the CEO more and are more willing to invest in the firm when the CEO communicates firm news followed by a negative earnings surprise through a personal Twitter account than when the news and surprise comes from the CEO via a website or from the firm's Investor Relations Twitter account or website. A follow‐up experiment shows that repeating the negative news does not incrementally affect investors who received the news from the CEO's Twitter account, but does further negatively impact investors who received the news via other disclosure mediums, especially those who received the news via the Investor Relations Twitter account. Our results have implications for firms and executives considering the costs and benefits of communicating with investors via Twitter.

Press releases accompanying earnings restatements attempt to minimize negative reactions by explaining the reasons for the restatement. Although text-based press releases have been the norm for years, firms have recently begun using online video for such announcements. We examine the implications of doing so, and find that when a CEO accepts responsibility by making an internal attribution for a restatement, investors viewing the announcement online via video recommend larger investments in the firm than do investors viewing the announcement online via text. In contrast, when the CEO denies responsibility by making an external attribution for the restatement, investors viewing the announcement online via video recommend smaller investments in the firm than do investors viewing the announcement online via text. Our results also reveal that investor trust mediates the effect of disclosure venue and attribution on investment recommendations. These findings are important given the economic significance and trust-damaging implications of restatements, as well as the increased use of online video to make important announcements. Data Availability: Contact the authors for data and video.