Investigating the Mediating Role of Understanding, Processing Fluency and Credibility of an Earnings Press Release on the Relationship between Language Sentiment, Readability, Sophistication and Investors’ Judgment and Decision-making

Document Type : Research Paper


1 Ph.D. Candidate, Department of Accounting, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran.

2 Prof, Department of Accounting, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran.

3 Assistant Prof., Department of Accounting, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran.

4 Prof., Department of Public Administration, Faculty of Management and Accounting, Shahid Beheshti University, Tehran, Iran.


Objective: The goal of this study is to investigate the mediating variables affecting investors’ judgments.
Methods: We conduct a 2.2.2 between-subject experiment with accounting students as participants to test our hypotheses. Independent variables that have been manipulated or measured are Language sentiment (positive vs. neutral), Readability (less vs. more) and investor sophistication level (less vs. more sophisticated investors). The dependent variable is investors’ forecasts of firm future earnings. The mediating variables are understanding, processing fluency and credibility of an earnings press release.
Results: Path analysis shows that understanding and processing fluency mediate the influence of positive language sentiment and low readability of an earnings press release on less sophisticated investors’ earnings judgments. Results further show that earnings press release credibility has the same effect on more sophisticated investors’ earnings judgments.
Conclusion: The results of this study show that the use of language sentiment which is compatible with a firm’s quantitative performance together with increasing the readability of qualitative disclosures can play an important role in improving understanding and enhancing the processing fluency of less sophisticated investors. It can be also a cautionary notice to management and warn them that more sophisticated investors’ perception of disclosure credibility may be impaired by manipulating the language sentiment and readability of qualitative disclosures.


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