The Impact of Offsetting Internal Attributions on Investor Judgments

Abstract

While prior research has primarily focused on how self-serving versus incentive-incompatible attributions impact investors’ judgments, we focus on how combining self-serving or incentive-incompatible attributions with offsetting internal attributions impact investors’ judgments. Offsetting internal attributions are causal explanations attributed to internal actions that impact earnings positively (negatively) in an overall negative (positive) news environment. Our first experiment demonstrates that when a firm has overall negative news, highlighting an offsetting, silver-lining attribution is viewed as more credible/forthcoming when it is accompanied by an overall incentive-incompatible versus self-serving attribution. Therefore, highlighting the silver-lining offset improves investors’ earnings estimates only when the management has also been highlighting incentive-incompatible versus self-serving attributions. Our second experiment finds that highlighting an offsetting, blemish attribution together with self-serving attributions increases credibility/forthcomingness assessments more than highlighting self-serving attributions alone. Our study extends research on management attributions and strategic disclosures and has practical implications.