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Article: The Effects of Table Versus Formula Presentation Formats on Investors’ Judgment about Executive Compensation

TitleThe Effects of Table Versus Formula Presentation Formats on Investors’ Judgment about Executive Compensation
Authors
KeywordsData presentation format
Understandability effect
Halo effect
Say-on-pay
Issue Date2020
PublisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/09638180.asp
Citation
The European Accounting Review, 2020, Epub 2020-04-08 How to Cite?
AbstractWe investigate how the data presentation format of executive compensation disclosures affects investors’ compensation- and investment-related judgment and decisions. We examine the effects of these formats and their underlying mechanisms via laboratory experiments. We compare bonus schemes presented in the table and formula formats and find an interaction effect between data presentation format and compensation favorability. When a manager receives unfavorable compensation due to missed performance targets, the table format is easier to understand than the formula format, whereas the latter appears more scientific than the former. These two effects work in opposite directions and therefore, result in an insignificant difference in approval ratings when the table, versus the formula, format is used. However, when the manager receives favorable compensation for beating performance targets, investors do not pay much attention to the disclosure’s understandability but still favor the formula format, as it has a scientific appearance. Therefore, we find that investors’ approval ratings are higher when using the formula format than the table format. We contribute to several research areas such as information understandability, the halo effect, compensation disclosures, and shareholder voting. Our findings also have practical implications for both managers and investors.
Persistent Identifierhttp://hdl.handle.net/10722/282479
ISSN
2020 Impact Factor: 3.208
2015 SCImago Journal Rankings: 0.828
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorXia, Y-
dc.contributor.authorHan, J-
dc.date.accessioned2020-05-15T05:28:39Z-
dc.date.available2020-05-15T05:28:39Z-
dc.date.issued2020-
dc.identifier.citationThe European Accounting Review, 2020, Epub 2020-04-08-
dc.identifier.issn0963-8180-
dc.identifier.urihttp://hdl.handle.net/10722/282479-
dc.description.abstractWe investigate how the data presentation format of executive compensation disclosures affects investors’ compensation- and investment-related judgment and decisions. We examine the effects of these formats and their underlying mechanisms via laboratory experiments. We compare bonus schemes presented in the table and formula formats and find an interaction effect between data presentation format and compensation favorability. When a manager receives unfavorable compensation due to missed performance targets, the table format is easier to understand than the formula format, whereas the latter appears more scientific than the former. These two effects work in opposite directions and therefore, result in an insignificant difference in approval ratings when the table, versus the formula, format is used. However, when the manager receives favorable compensation for beating performance targets, investors do not pay much attention to the disclosure’s understandability but still favor the formula format, as it has a scientific appearance. Therefore, we find that investors’ approval ratings are higher when using the formula format than the table format. We contribute to several research areas such as information understandability, the halo effect, compensation disclosures, and shareholder voting. Our findings also have practical implications for both managers and investors.-
dc.languageeng-
dc.publisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/09638180.asp-
dc.relation.ispartofThe European Accounting Review-
dc.rightsPreprint: This is an Author's Original Manuscript of an article published by Taylor & Francis Group in [JOURNAL TITLE] on [date of publication], available online: http://www.tandfonline.com/doi/abs/[Article DOI]. Postprint: This is an Accepted Manuscript of an article published by Taylor & Francis Group in [JOURNAL TITLE] on [date of publication], available online at: http://www.tandfonline.com/doi/abs/[Article DOI].-
dc.subjectData presentation format-
dc.subjectUnderstandability effect-
dc.subjectHalo effect-
dc.subjectSay-on-pay-
dc.titleThe Effects of Table Versus Formula Presentation Formats on Investors’ Judgment about Executive Compensation-
dc.typeArticle-
dc.identifier.emailHan, J: junhan@business.hku.hk-
dc.identifier.authorityHan, J=rp01066-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1080/09638180.2020.1741419-
dc.identifier.scopuseid_2-s2.0-85083588888-
dc.identifier.hkuros309870-
dc.identifier.volumeEpub 2020-04-08-
dc.identifier.isiWOS:000557477100001-
dc.publisher.placeUnited Kingdom-
dc.identifier.issnl0963-8180-

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