The Effect of Presentation Form on the Use of Information in Annual Reports

Abstract

Information for management decisions is typically presented in both numeric and nonnumeric forms. This paper tests whether the choice of presentation form affects the use of such information by decision makers. Selected information from corporate annual reports was provided to a group of practicing financial analysts in a quasi-experimental setting. The analysts were asked to evaluate two companies (one R&D company and one manufacturing company) using selected financial data and excerpts from the president’s letter. Some versions of the letter contained numeric information while other versions contained nonnumeric information. The study tested several hypotheses which specified the conditions under which information in one presentation form would receive higher weight in a decision than the other form. Relative weights placed on different information forms were determined by an averaging model from information integration theory. The appendix contains a presentation of that model. The study’s results suggest that when the link between organizational actions and future performance is not well established and understood, financial analysts may give more weight to nonnumeric information in evaluating a company. This study has important implications because it shows that in certain situations managers can influence financial analysts’ use of information by varying presentation form.