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Investment Experience, Financial Literacy, and Investment‐Related Judgments†

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  • Susan D. Krische

Abstract

This research examines how investment experience and financial literacy impact investment‐related judgments. Financial literacy refers to a person's knowledge of fundamental financial concepts. I begin by documenting investors' demographic characteristics and financial literacy using a relatively large sample of participants (n > 2,000) recruited from Amazon's Mechanical Turk under different categories of investment experience, which I benchmark against national samples of financial capability skills in the United States. I then replicate a sample of three accounting research experiments, varying the type and depth of the underlying accounting issue. Across the three experiments, the data show two main results: First, investment experience strengthens the influence of financial accounting disclosures on participants' investment‐related judgments. Second, financial literacy further strengthens the influence of financial accounting disclosures on investors' (but not noninvestors') judgments. Collectively, these findings suggest that investment experience and financial literacy can help to identify individuals who are more likely to be able and willing to study financial reporting information with reasonable diligence as they form their investment‐related judgments. Expérience en placement, littératie financière et jugements en matière de placements L'auteure étudie l'incidence de l'expérience en placement et de la littératie financière sur les jugements en matière de placements. La littératie financière s'entend de la connaissance que possède une personne des notions financières élémentaires. L'auteure documente d'abord les caractéristiques démographiques des investisseurs et leur littératie financière à partir d'un échantillon relativement important de participants (n > 2 000), recrutés au moyen du Turc mécanique d'Amazon selon les catégories d'expérience en placement dans lesquelles ils se classent, et compare ensuite ces données à celles d’échantillons nationaux de compétences financières aux États‐Unis. Elle reproduit ensuite trois expériences de recherche en comptabilité, en variant la nature et la profondeur de la problématique comptable sous‐jacente. Dans les trois cas, elle obtient deux résultats principaux : premièrement, l'expérience en placement renforce l'incidence de la communication d'informations financières sur les jugements des participants en matière de placements ; deuxièmement, la littératie financière renforce davantage l'incidence de la communication d'informations financières sur les jugements des investisseurs (mais non sur les jugements des non‐investisseurs). Dans l'ensemble, ces observations semblent indiquer que l'expérience en placement et la littératie financière permettent de mieux distinguer les personnes qui sont davantage susceptibles d’être en mesure d’étudier et de souhaiter analyser les informations financières qui leur sont communiquées avec une diligence raisonnable dans l’élaboration de leurs jugements en matière de placements.

Suggested Citation

  • Susan D. Krische, 2019. "Investment Experience, Financial Literacy, and Investment‐Related Judgments†," Contemporary Accounting Research, John Wiley & Sons, vol. 36(3), pages 1634-1668, September.
    • Handle: RePEc:wly:coacre:v:36:y:2019:i:3:p:1634-1668
    DOI: 10.1111/1911-3846.12469
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    References listed on IDEAS

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    1. Angela Hung & Andrew Parker & Joanne K. Yoong, 2009. "Defining and Measuring Financial Literacy," Working Papers 708, RAND Corporation.
    2. Ganesh Krishnamoorthy & Arnie Wright & Jeffrey Cohen, 2002. "Audit Committee Effectiveness and Financial Reporting Quality: Implications for Auditor Independence," Australian Accounting Review, CPA Australia, vol. 12(28), pages 3-13, November.
    3. Edward T. Cokely & Mirta Galesic & Eric Schulz & Saima Ghazal & Rocio Garcia-Retamero, 2012. "Measuring risk literacy: The Berlin Numeracy Test," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(1), pages 25-47, January.
    4. Hirshleifer, David & Subrahmanyam, Avanidhar & Titman, Sheridan, 2006. "Feedback and the success of irrational investors," Journal of Financial Economics, Elsevier, vol. 81(2), pages 311-338, August.
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    10. Krische, Susan & Mislin, Alexandra, 2020. "The impact of financial literacy on negotiation behavior," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 87(C).
    11. Yi Luo & Steven E. Salterio, 2022. "The Effect of Gender on Investors’ Judgments and Decision-Making," Journal of Business Ethics, Springer, vol. 179(1), pages 237-258, August.
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