The Effects of Information Ordering on Investor Perceptions: an Experiment Utilizing Presidents' Letters

This study provides experimental evidence regarding the existence of order effects related to the presentation of positive and negative qualitative information in annual reports. Specifically, the effect of information order in the president’s letter is examined. The president’s letter in an annual report is an important vehicle for management to persuade investors that the company is a worthwhile investment. Prior studies have shown both that managements manipulate information in presidents’ letters and that investors use the information in presidents’ letters in making investment decisions. Such usage has potential ramifications for corporate management and investors. This study extends prior research by examining whether the ordering of good news and bad news in a president’s letter could bias investor perceptions. Part-time MBA students participated in an experiment as surrogates for investors. The results indicate a primacy effect did occur.