Risk Information Disclosure Of The Hedged Item And Hedging And Investors’ Judgments

In order to avoid the adverse effects of the significant changes in foreign exchange, interest rates and commodity prices on the performance of the company, more and more companies use futures, options and other derivative financial instruments to hedge the risks. How to properly communicate the risk information of the hedged item and hedging instrument to the outside stakeholders and help investors perceive the risk condition of hedging and make investment judgments properly, which is an important aspect for the quality of accounting information improvement and the investors’interest protection. This study employs the psychology theories and examines the effects of the risk information disclosure contents and disclosure forms of the hedged item and hedging instrument on individual investors’investment judgments by experimental method.The dissertation is composed of six chapters. Chapter one is an introduction of this study; Chapter two is the literature review, and reviews the existing literatures about market risk information disclosure, the economic consequences of using derivative financial instruments, and information disclosure contents and forms; Chapter three analyzes the effects of the risk information disclosure contents and disclosure forms of the hedged item and hedging instrument on investors’judgments based on the relevance psychology theories of limited cognitive ability, priming effect and behavioral risk perspective; Chapter four describes the experimental design and participants; Chapter five analyzes the experimental data and tests hypotheses; Chapter six concludes the dissertation, and discusses the limitations and future research directions.The main conclusions of the dissertation are as follows:1. The theoretical analysis argues:due to limited cognitive ability of individual investors and priming effect, the risk information disclosure contents and forms of the hedged item and hedging instrument affect investment judgments of individual investors. These contents and forms include:loss-only risk information disclosure of the hedged item and hedging instrument, loss and gain risk information disclosure of the hedged item and hedging instrument, adding to or only to disclose net risk information after hedging and so on. In addition, investors’ perceived worry about the risks of the hedged item price increase and net income volatility mediate the effects of risk information disclosure contents and forms on investors’ judgment.2. The experimental results indicate:(1) when the company provides loss-only risk information about the risk of fuel price volatility for no hedging, and the company provides loss-only risk information about the risk of fuel (hedged item) price volatility and hedging instrument for hedging, in the two conditions, there is no difference in investors’ judgments of investment riskiness and investment attractiveness. Investors don’t perceive the risk decrease due to hedging and make investment judgments improperly.(2) Compared to the loss-only information disclosure about risk of fuel (hedged item) price volatility and the hedging instrument, when adding to disclose loss-only net risk information on the basis, investors’ investment riskiness judgment is lower and investment attractiveness evaluation is greater. Investors perceive the risk decrease due to hedging and make investment judgments properly. However, compared to adding to disclose loss-only net risk information above, when companies disclose loss-only net risk information only, individual investors’ investment riskiness judgment is higher and investment attractiveness evaluation is smaller.3. The experimental results indicate:(1) Compared to loss-only risk information disclosure about risk of fuel price volatility and the hedging instruments, when companies disclose loss and gain risk information about risk of fuel price volatility and the hedging instruments, investors’ investment riskiness judgments are lower and investment attractiveness judgments are greater. Investors perceive the risk decrease due to hedging and make investment judgments properly.(2) Compared to the loss and gain risk information disclosure about risk of fuel price volatility for no hedging, when the company provides loss and gain risk information about risk of fuel price volatility and hedging instrument for hedging, investors’ investment riskiness judgment is lower and investment attractiveness evaluation is greater. Investors perceive the risk decrease due to hedging and make investment judgments properly.(3) In the condition of loss and gain risk information disclosure about risk of fuel price volatility and hedging instrument, there is no difference in investors’ judgments of the investment riskiness and investment attractiveness when companies add to disclose loss and gain net risk information or not. However, compared to adding to disclose loss and gain net risk information above, when companies disclose loss and gain net risk information only, investors’investment riskiness judgment is higher and investment attractiveness evaluation is smaller.4. The experimental results indicate that in the process of individual investors’ investment judgments, perceived the extent to worry about the risks of fuel price increase partly mediates the effects of net risk information disclosure forms and risk information disclosure contents on the investors’net income volatility judgment; the net income volatility judgment fully mediates the effects of the worry about the risks of fuel price increase on investment risk judgments; investment risk judgments fully mediates the effects net income volatility judgment on investors’investment attractiveness evaluations.These results above indicate that for the loss-only risk information disclosure about risk of fuel price volatility and the hedging instrument, investors don’t perceive the risk decrease due to hedging and make investment judgments improperly. For the loss and gain risk information disclosure about risk of fuel price volatility and the hedging instrument, or adding to disclose loss-only net risk information on the basis of loss-only information disclosure about risk of fuel price volatility and the hedging instrument, investors can perceive the risk decrease due to hedging and make judgments properly.