yeganeh faghfour maghrebi

Investors' decisions affect the allocation of resources in the capital market so it is important to gain knowledge about the mechanism and factors affecting their judgment and decision-making. In the first step, this study, provides an integrated picture of the theories and viwpoints related to the application of cognitive psychology in the field of judgment and decision-making. In the second step of the research, the thematic analysis has been used to investigate the factors affecting the quality of investors' judgment and decision-making from 2006 to 2022 using 40 papers published in international journals. Analysis results related to the factors affecting the quality of investors’ judgment and decision-making show five main themes, including; (1) The usage of qualitative (narrative) information in addition to quantitative information to convey information, (2) Historical course of theories related to judgment and decision-making, (3) Effective factors making differences in the quality of judgment and decision-making, (4) Impact of implicit and integrated feelings and emotions on judgment and decision-making, and (5) Consequences (benefits of paying attention to the factors affecting the quality of judgment and decision-making). The results of this study show that decision and judgment of investors can be affected by the interaction of factors affecting the person, the type of activity (goal) and the environment, and it is necessary to pay attention to each of these factors in order to explain the behavior and judgments of investors.

The goal of this study is to investigate the mediating variables affecting investors’ judgments.

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.

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.

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.