Hyperlinking Unaudited Information to Audited Financial Statements: Effects on Investor Judgments

Posted: 1 Aug 2001

See all articles by Frank D. Hodge

Frank D. Hodge

University of Washington - Michael G. Foster School of Business

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Abstract

This study provides evidence that hyperlinking a firm's audited financial statements to unaudited information in a Web-based environment leads investors to blend the unaudited information with the audited statements. I obtain evidence of this blending effect using an experiment where investors assessed a firm's earnings potential by evaluating the firm's audited financial statements and a subsequent optimistic unaudited letter to shareholders from the firm's management. Investors who viewed hyperlinked materials on the Web misclassified more unaudited information as audited, and assessed the credibility of the unaudited information as higher, than did investors who viewed hardcopy materials. Those investors who assessed the unaudited information as more credible also judged the firm's earnings potential to be higher. Notifying users with an "AUDITED/NOT AUDITED" label attenuated these effects. This evidence suggests that firms can influence financial report users' perceptions by hyperlinking unaudited information to information in their audited financial statements, and that a simple disclosure rule reduces this influence.

Keywords: World Wide Web; Financial statement analysis; Audited/unaudited; Presentation format

JEL Classification: D83, M41, M45, M49, O33

Suggested Citation

Hodge, Frank Douglas, Hyperlinking Unaudited Information to Audited Financial Statements: Effects on Investor Judgments. Available at SSRN: https://ssrn.com/abstract=273043

Frank Douglas Hodge (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Paccar Hall 540, Box 353200
Seattle, WA 98195-3200
United States
206-616-8598 (Phone)
206-685-9392 (Fax)

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