The Joint Effect of Narrative Structure, Medium Interactivity, and Readability on Investors' Investment Decisions

Abstract

We conduct an experiment to investigate how narrative structure (the extent to which good news is dispersed), the interactivity of disclosure medium (interactive versus non-interactive), and readability (high versus low) jointly influence investors’ investment decisions. We find that a disclosure with good news that is more dispersed leads to a higher investment amount. This narrative-structure effect is evident when a disclosure is easy to read and non-interactive or when it is hard to read and interactive. This effect disappears when a disclosure is hard to read and non-interactive or when it is easy to read and interactive. Our study extends accounting literature by showing how interactivity and readability moderate the narrative- structure effect and how readability moderates the interactivity effect. Our findings suggest that managers’ discretions over narrative structure should be constrained and that high readability is essential for interactivity to benefit investors.