To Correct or Not to Correct: Are Investors Able to Discern Fake Financial News?

AbstractThis study attempts to understand how to reduce the continued influence of misleading financial news and examine the effectiveness of corrective efforts such as ex-ante disclosure of compensation of a promoter/writer and the immediacy of ex-post correction. In the 2 (disclosure vs. no disclosure) × 2 (immediate correction vs. delayed correction) experiment, student participants received a (fake) news article including or excluding the author’s affiliation and compensation scheme and were then provided a correction invalidating its content. The correction was provided either immediately or with a delay. The results showed that although participants were susceptible to the influence of positive yet misleading news, providing warnings about potential economic conflicts of interest seemed to temper this enthusiasm among investors. Participants exhibited greater receptiveness to explicit corrections when the initial news article included a compensation disclosure, and when they were not immediately prompted to process the correction. Our findings imply that delaying corrections may offer distinct advantages, as it provides investors with the opportunity to assimilate the compensation disclosure information into their investment decisions over time. Additionally, our results indicate that a dual approach involving conflict of interest disclosure and subsequent correction can be an effective long-term strategy in mitigating investors’ vulnerability to misinformation.Keywords: Corrective measuresFake newsInvestor judgmentsMisinformation AcknowledgementThe authors are thankful for the participants’ suggestions at the accounting research workshop at DePaul University. The authors would also like to thank DePaul University for the financial support.Disclosure statementNo potential conflict of interest was reported by the authors.Notes1 In the experiment, we did not specify the degree of truthfulness of the news article and believed that any reaction to positive news would satisfy the lower bound of fake news. In a pilot study, we provided one group of participants with the financial highlights plus the fake (optimistic) news article and the other group with only the financial highlights. We compared the judgments from these two groups and attributed any difference between the two conditions to fake news. We found that judgments from the financial highlights + optimistic news condition are much higher than those from the financial highlights-only condition. This evidence indicates that the optimistic news article indeed inflated investors’ investment judgments.2 We introduced three demographic variables—working experience, investment experience, and age—as covariates in our ANOVA analysis. None of these variables yielded statistical significance. Importantly, the inclusion of these covariates did not alter the outcomes or results of our ANOVA analysis.3 Two sided p = 0.14 (see Table 5)