How Does Using a Mobile Device Change Investors’ Reactions to Firm Disclosures?

• Published date: 01 June 2020
• Date: 01 June 2020
• DOI: http://doi.org/10.1111/1475-679X.12299
• Author: STEPHANIE M. GRANT

DOI: 10.1111/1475-679X.12299

Journal of Accounting Research

Vol. 58 No. 3 June 2020

Printed in U.S.A.

How Does Using a Mobile Device

Change Investors’ Reactions to Firm

Disclosures?

STEPHANIE M. GRANT ∗

Received 7 June 2017; accepted 7 January 2020

ABSTRACT

I examine how characteristics of investors’ information access tools change in-

vestors’ reactions to firm disclosures. I examine my research question in the

context of information choice (i.e., allowing investors to choose the order

of information and sections to read within a disclosure) and spatial layout

(i.e., how information is displayed when viewing the disclosure). Results of

an experiment are consistent with information choice improving investors’

judgments if the disclosure is viewed on a computer screen. Conversely, and

consistent with cognitive overload, information choice harms investors’ judg-

ments if the disclosure is viewed on a smaller screen, such as that of a mobile

device. Follow-up experiments show that changing the disclosure presenta-

tion to reduce the need to scroll is one way to improve investors’ judgments

∗University of Washington.

Accepted by Christian Leuz. This paper is based on my doctoral dissertation com-

pleted at the University of Illinois at Urbana-Champaign. I thank my committee members—

Jessen Hobson, Mark Peecher, Tiffany White, and especially my chair, Brooke Elliott.

I also thank an anonymous reviewer, Beth Blankespoor, Tim Brown, Joe Burke, Nicole

Cade, Deni Cikurel, Richard Crowley, Ties de Kok, Paul Demere, Brian Gale, Brent Garza,

Weili Ge, Shawn Gordon, Kamber Hetrick, Sean Hillison, Frank Hodge, Kathryn Holm-

strom, Ryan Hudgins, Brad Kamrath, Kim Mendoza, Tracie Majors, Sarah McVay, Saman-

tha Seto, Rosh Sinha, Jeff Williams, Amanda Winn, doctoral students at Emory Univer-

sity and the University of Washington, and workshop participants at the University of

Illinois at Urbana-Champaign, Indiana University, and the University of Washington for

helpful comments. I gratefully recognize the financial support of the Richard D. and

Anne Marie Irwin Foundation. An online appendix to this paper can be downloaded at

http://research.chicagobooth.edu/arc/journal-of-accounting-research/online-supplements.

741

CUniversity of Chicago on behalf of the Accounting Research Center, 2020

742 S.M.GRANT

on a smaller (or mobile) screen. My findings caution firms and regulators

about expanding information choice within disclosures without considering

the screen size used to access the disclosure.

JEL codes: G11; G40; M40; M41

Keywords: information choice; interactive disclosures; mobile technology;

spatial layout; information processing costs; investment decisions; informa-

tion presentation features; access tools

1. Introduction

Regulators, accounting firms, and academics are concerned that grow-

ing disclosure volume is increasing investors’ information processing costs

(KPMG [2011], SEC [2013], Ernst and Young [2014]). This, in turn, can

cause investors to allocate capital less efficiently (Miller [2010], Lawrence

[2013]) and delay the impounding of information into price (You and

Zhang [2009], Cohen and Lou [2012]). Research has found that one way

to reduce processing costs and improve judgments is by changing disclo-

sure presentation features (Hodge, Kennedy, and Maines [2004], Libby

and Emett [2014]). These findings assume firms can control all aspects

of the presentation, including how investors access the disclosure. How-

ever, investors can choose which tools they use to access and read financial

disclosures, which may change how they react to them (Brown, Stice, and

White [2015], Miller and Skinner [2015]). Therefore, in this study, I exam-

ine how characteristics of investors’ information access tools, which likely

affect processing costs, change investors’ reactions to firm disclosures.

I examine my research question in the context of a specific disclo-

sure presentation feature (i.e., information choice—allowing investors to

choose the order of information and sections to read) and characteristic

of investors’ access tools (i.e., spatial layout—how information is displayed

when viewing the disclosure). Recently, firms are making use of digital

features by offering more choice in the way and order information is ac-

cessed (Lin [2015], SEC [2015]). For example, as shown in appendix A,

Microsoft’s press release provides information via clickable hyperlinks. The

top of the page includes links to the press release, financial statements, key

metrics, and so on. Information choice allows investors to choose the order

of information and sections they want to read by clicking on the links. At

the same time, investors are increasingly accessing information on smaller

screen mobile devices (Miller and Skinner [2015]). Mobile devices account

for an estimated 50% of visits to investor relations Web sites and 31% of vis-

its to PR Newswire press releases (PR Newswire [2014], Roach [2014]). Sur-

veys suggest that 63% of institutional investors and 34% of retail investors

use mobile devices for research (Smith [2016]) and a variety of other in-

vesting tasks (Fidelity [2014]). Finally, an estimated 36% of all retail trades

now come from mobile devices (IG Analyst [2018]), ultimately impacting

market activity (Brown, Stice, and White [2015]). These two trends create

MOBILE DEVICES AND INVESTORS’REACTIONS 743

a potential trade-off. On one hand, choice could improve investors’ judg-

ments, as anecdotal evidence suggests they demand choice (PR Newswire

[2013], Business Wire [2014a, b], Roach [2014]). On the other hand, more

choice on smaller screens could be confusing or frustrating, as smaller

screens create more variable layouts of information, meaning that the infor-

mation visible at a given time changes location (Piolat, Roussey, and Thunin

[1997]). Thus, it is not clear that information choice is necessarily good, as

the benefits likely depend on investors’ access tools.

I draw on cognitive load theory to develop predictions. This theory sug-

gests that some presentation features can lead to deeper processing and

higher quality judgments. I predict that investors who actively choose the

order of information and sections to view (i.e., high choice) will engage in

deeper processing, resulting in higher quality judgments when the layout of

information is less variable (e.g., displayed on a larger screen). However, I

also expect that making the same choices when the layout of information is

more variable (e.g., displayed on a smaller screen) will increase investors’

cognitive load and reduce the benefits of choice. Ultimately, I predict an

interaction between information choice and spatial layout—high choice

will improve investors’ judgments more when information displayed on the

screen is less compared to more variable.

I test my prediction by conducting three experiments, all using a 2 ×

2 between-subjects design with information choice (low vs. high) and spa-

tial layout (less vs. more variable) as manipulated independent constructs.

In all experiments, participants assume the role of prospective investors,

providing a valuation judgment after evaluating a firm’s press release. The

press release describes a transitory gain. If participants remove the transi-

tory gain when forming their valuations, they will have lower valuation judg-

ments. Therefore, I interpret lower valuation judgments as consistent with

higher quality judgments. The press release contains links at the top, label-

ing each section. I manipulate information choice by allowing participants

to navigate only sequentially through the press release (“low choice”) or by

also allowing them to click the links to move directly to that section of the

press release (“high choice”). I manipulate spatial layout by varying screen

size in experiments 1 and 2, and by varying the disclosure presentation in

experiment 3 (see appendix B and details below).

In experiment 1, I manipulate spatial layout by presenting the press

release in a traditional computer size box (“less variable”) or a smaller

mobile-device size box (“more variable”) on the computer screen. In the

more variable condition, more scrolling movement is required to read the

press release, and pieces of information could appear in any location (i.e.,

top or bottom of the screen), depending on how much the user scrolls. I

track time spent and measure investors’ frustration when reading the press

release, which I expect to be associated with cognitive load. Results sup-

port my prediction. Valuation judgment results are consistent with high

choice improving investors’ judgments, relative to low choice, when infor-

mation is less variable (e.g., displayed on a larger screen). Supplemental