The dilution effect of Cam disclosures on investors' investment judgements
Date of Issue2016-09-26
College of Business (Nanyang Business School)
I conduct an experiment to examine whether a Critical Audit Matter (CAM) disclosure will weaken the influence of other material information on nonprofessional investors’ judgments. I predict and find evidence consistent with a dilution effect of CAM disclosures. Specifically, the negative influence of other material bad news is weakened by the presence of CAM disclosures. The CAM disclosures also increase investors’ confidence in their overall investment judgments. My results suggest that the disclosure of CAMs intended to provide more relevant information to investors can have the opposite effect of tempering investors’ utilization of other material information relevant to investment-related judgments.