Examining the Effects of Varying Levels of Similar or Dissimilar Detail on Investors' Risk Perceptions and Investment Decisions
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I use an experiment to examine how varying levels of similar or dissimilar detail between risk oversight disclosures influences nonprofessional investors' judgments and decisions. Investors evaluate the risk oversight disclosures of two firms that have different levels of risk exposure but the same risk governance practices. Drawing from research in psychology, I predict and find that more detailed disclosures have a greater persuasive influence on investors' (1) perceptions of the board's involvement in risk oversight, (2) perceptions of the board and management's effectiveness at managing risks, and (3) investment decisions. Investors' risk perceptions and investment decisions are greater for the low-risk firm relative to the high-risk firm, except when the low-risk firm's risk oversight disclosure contains less detail than the high-risk firm's disclosure, suggesting that detail within risk oversight disclosures can influence investors' perceptions of risk governance beyond the underlying risk characteristics of the firm. Results have implications for investors, regulators, managers, and boards.