Abstract
Regulation G (SEC 2003b) requires managers to reconcile textual non-GAAP performance measures (i.e., pro forma disclosures) to GAAP. Graphical disclosures also require reconciliation; however, neither the format nor the placement of the reconciliation is specified. We apply cognitive fit theory to argue that the influence of graphical information presentation formats is contingent on investor type and judgment complexity. Participants in our study viewed a simulated Investor Relations web site for a large drug retailer and made judgments regarding current fiscal year earnings performance, earnings potential, and investment amount. We manipulated graphical (GAAP-only vs. GAAP and pro forma), and textual (GAAP-only vs. pro forma reconciled to GAAP) earnings disclosure content in a 2 x 2 between-participants design. We find that nonprofessional investors’ current fiscal year earnings performance, earnings potential, and investment amount judgments are all influenced by graphical displays which include pro forma as opposed to GAAP-only earnings information. Graphical displays of pro forma earnings information do not influence professional investors’ current year earnings performance judgments; however, these displays do influence professional investors’ earnings potential and investment amount judgments because they are more complex. Our results suggest a need to further examine the influence of graphical pro forma earnings presentation formats on investor judgments.
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