Disclosure Effectiveness: Evidence from the Field

Abstract

Field-based experiment are used to examine whether variations in pension fund accounting information affects pension members' investment judgments. Disclosure effectiveness is defined as the strength of making an additional voluntary contribution on the basis of pension fund annual reports containing variations in both news favorableness (defined in terms of either funding or investment risk) and environmental complexity. Environmental complexity in turn is defined in terms of variations in both data load (reflecting different mixes of financial and non-financial information contained in public sector or private sector sponsored pension fund accounts) and information load (statement of net assets plus footnote of pension funding ratio, or balance sheet showing net surplus or deficit). Individual pension plan members' investment judgments are found to be sensitive to environmental complexity. The results support the argument that disclosure effectiveness is enhanced by providing more extensive financial information for pension plan members as is presently required for shareholder reporting under UK GAAP.Our empirical results are supported by supplemental analysis and policy recommendations.