Accounting Information Relevance for Investment Decision Making Processes

Abstract

This research investigates the evolving relevance of accounting information within
contemporary investment decision-making frameworks, challenging traditional assumptions about financial statement utility. We propose a novel methodological
approach that integrates behavioral finance constructs with computational text
analysis to examine how professional investors process, weight, and ultimately utilize accounting disclosures. Departing from conventional capital markets research
that predominantly employs archival data and event studies, this study employs
a mixed-methods design combining controlled laboratory experiments with investment professionals and natural language processing of investment committee transcripts. Our primary research question interrogates whether the informational content of accounting reports remains a primary input for equity valuation in an era
characterized by alternative data sources, algorithmic trading, and shortened investment horizons. A secondary question explores the cognitive heuristics investors
employ when encountering complex accounting disclosures, particularly those related to intangible assets and forward-looking estimates. The experimental component exposes 87 certified financial analysts to varying presentations of identical
accounting information, manipulating narrative disclosure tone, footnote complexity, and non-GAAP metric prominence. Concurrently, we analyze 2,500 pages of
investment committee deliberations from three asset management firms using a
custom dictionary to quantify references to traditional accounting metrics versus
alternative data points. Results reveal a significant divergence between professed
reliance on accounting fundamentals and actual decision weightings. While participants verbally affirmed the importance of earnings quality and balance sheet
strength, process tracing and transcript analysis indicate that accounting data often
serves a confirmatory rather than formative role, particularly for growth-oriented
investments. A striking finding is the increased cognitive discounting applied to
accounting information when accompanied by voluminous regulatory disclosures,
suggesting an information overload effect that undermines relevance. Furthermore,
we identify a ’narrative coherence heuristic,’ where investors place disproportionate
weight on accounting disclosures that align with a pre-existing investment thesis,
while discounting contradictory data. The study concludes that accounting relevance is not an inherent property of the information itself but emerges from the
interaction between disclosure design, investor cognitive architecture, and decision
context. This reconceptualization has profound implications for standard setters,
corporate preparers, and the investment community, suggesting that enhancing relevance may require fundamental changes in disclosure philosophy and presentation,
moving beyond incremental improvements to existing reporting models.