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Grant, S. M., Hobson, J. L., and Sinha, R. K. (2024). Digital Engagement Practices in Mobile Trading: The Impact of Color and Swiping to Trade on Investor Decisions. Management Science,70(3), 2003–2022.
Abstract
As coined by the SEC, Digital Engagement Practices (DEPs) are visual cues and design features to engage investors on mobile trading platforms. With the rise of mobile stock trading, regulators and other capital market participants are concerned that these DEPs may cause retail investors to trade in ways they otherwise would not. Using an experiment, we examine the impact of two common DEPs in mobile trading platforms color (i.e., the use of green or red to indicate performance) and allowing investors to swipe versus click and confirm to execute trades. Drawing from prior research, we predict that the color associated with firm information will interact with how investors execute their trades to affect investment decisions. Consistent with expectations, results show that investors make the largest investment in a firm when they swipe to trade and firm information is colored green, relative to when they click and confirm to trade or firm information is colored red, holding firm economics constant. Swiping to trade causes investors to focus relatively more on the upside of investing, but only when firm information is colored green and not when it is colored red. The color red leads to a muted effect of swiping to trade as investors experience more negative affect and focus relatively more on the downside of investing. Our study answers calls from regulators and academics to examine the effects of technology on information evaluation in investment decisions, and has important practical implications for investors.
Hodge, F. D., Mendoza, K. I., and Sinha, R. K. (2021). The Effect of Humanizing Robo-Advisors on Investor Judgments. Contemporary Accounting Research, 38(1), 770–792.
Abstract
We examine the effect of humanizing (naming) robo-advisors on investor judgments, which has taken on increased importance as robo-advisors have become increasingly common and there is currently little SEC regulation governing key aspects of their use. In our first experiment, we predict and find that investors are more likely to rely on the investment recommendation of an unnamed robo-advisor, whereas they are more likely to rely on the investment recommendation of a named human advisor. Theory suggests one reason that naming a robo-advisor may have drawbacks pertains to the complexity of the task the robo-advisor performs. We explore the importance of task complexity in our second experiment. We predict and find that investors are less likely to rely on a named robo-advisor when the advisor is perceived to be performing a relatively complex task, consistent with our first experiment, and more likely to rely on a named robo-advisor when the advisor is perceived to be performing a relatively simple task, consistent with prior research on human-computer interactions. Our findings contribute to the literature examining how technology influences the acquisition and use of financial information and the general literature on human-computer interactions. Our study also addresses a call by the SEC to learn more about robo-advisors. Lastly, our study has practical implications for wealth management firms by demonstrating the potentially negative effects of making robo-advisors more humanlike in an attempt to engage and attract users.
Grant, S. M., Hodge, F. D., and Sinha, R. K. (2018). How Disclosure Medium Affects Investor Reactions to CEO Bragging, Modesty, and Humblebragging. Accounting, Organizations and Society, 68-69, 118-134.
Abstract
We examine if investor expectations of two common disclosure mediums (conference calls and Twitter) interact with a CEO's communication style to influence investor judgments. Consistent with theory, results show that when the disclosure medium is a conference call, investors are less willing to invest when the CEO is modest about positive firm performance compared to when the CEO brags. In contrast, when the disclosure medium is Twitter, investors are less willing to invest when the CEO brags about positive firm performance compared to when the CEO is modest. Further analysis reveals that perceived CEO credibility mediates the influence of a CEO's communication style and disclosure medium on investor judgments. Additionally, we find that regardless of the disclosure medium, investors are less willing to invest in a firm when the CEO humblebrags about positive firm performance relative to when he brags or is modest. Our study contributes to the emerging literature on social media and disclosures, and to the literature investigating how style features of disclosures influence investor judgments. Our results also have practical implications for firms and managers developing communication strategies for new disclosure mediums like Twitter.