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Does Readability Improve Investors’ Understanding of Hedging Positions?

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  • Wenhuan Liu
  • Yue Yan
  • Bin Li
  • Chaosha Yang

Abstract

Readability is a key issue in the presentation of hedging risk information. We use psychological theories and experiments to analyse and examine the effects of the readability of hedging risk and hedge effectiveness information on investors’ assessment of investments. We find that when hedging risk information presentation is more readable, investors’ judgement of the attractiveness of an investment is higher when hedging effectiveness is high than when hedging effectiveness is low. However, when hedging risk presentation information is less readable, there is no significant difference in their judgement of the attractiveness of an investment between two hedging effectiveness levels. Meanwhile, we further identify the mediation effects of the readability of hedging risk information on investors’ judgement of an investment's attractiveness. The findings of our study have significant implications for improving accounting information readability and enhancing accounting information quality.

Suggested Citation

  • Wenhuan Liu & Yue Yan & Bin Li & Chaosha Yang, 2024. "Does Readability Improve Investors’ Understanding of Hedging Positions?," Australian Accounting Review, CPA Australia, vol. 34(2), pages 178-186, June.
    • Handle: RePEc:bla:ausact:v:34:y:2024:i:2:p:178-186
    DOI: 10.1111/auar.12423
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    References listed on IDEAS

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    Cited by:

    1. Yaowen Shan & Sue Wright, 2024. "Insights for Senior Accounting Managers," Australian Accounting Review, CPA Australia, vol. 34(2), pages 99-100, June.

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