Results announcements are crucial documents in the investment world. They offer the first opportunity to confirm or update our expectations of the performance of a company over the year that has passed and provide some insight into what might happen in the future. Therefore, no matter what tool you use, digesting the news contained in a results announcement as quickly as possible after its release is the goal of every investor. However, reams of academic research have shown that the way that information is presented can significantly influence how we process and make decisions. We also know that company management takes advantage of this fact in how they structure management commentary and where they place information about specific transactions. The goal might be to assist investor understanding and decision-making, but it may also be to protect management’s own interests.
Therefore, all experienced investors have learned to carefully interrogate the details in results announcements to ensure that they are not unduly influenced by structuring that is potentially intended to deflect attention away from bad news. However, we seldom consider that the order in which the financial statements themselves are displayed is also a structuring decision and that this may influence the way in which we process the results announcement. There are reasons why this order might be purely random (for example due to space constraints on a specific page), but I have often wondered if the ordering decisions I notice are occurring on a systematic basis.
In good news for my ego, recent academic research suggests that I have not been imagining it all these years 1. Specifically conducted in South Africa, this research suggests that, amongst other things, companies bury bad news on the profit front in a results announcement by leading with the other financial statements. In addition, they tend to place the cash flow statement next to the income statement in these cases to direct attention away to “better” news. All of this would be purely of academic interest (excuse the pun) if it were not for the fact that the research also finds that these structuring differences have a long-term impact on company valuations. For example, well-known processing errors by investors (and, by implication, the resultant incorrect pricing of companies) appear to be reduced when the cash flow statement and income statement are placed next to each other rather than further apart.
It is worth emphasising that the order in which financial statements are placed is not necessarily to the disadvantage of investor decision-making. The research also finds, for example, that firms with more volatile profits (think, for example, about the mining industry) tend to order their financial statements to assist investors to process their profits more accurately. Therefore, it does not necessarily follow that the best investment process is one that standardises the order in which the financial statements are reviewed. However, the research findings do suggest that considering the information in a results announcement several times, following a different order each time, might be a worthwhile exercise in improving decision-making. Even if we are only aware of the potential risks in processing information as it is presented or in always searching for information in the same order according to our preferences, this may improve the investment outcomes that we achieve.
It is important that we do not dismiss these research findings too quickly. For example, it is true that results announcements are not the only source of information about a company’s performance. However, the research finds that the order in which financial statements were presented in the results announcement reflects in long-term pricing outcomes. This suggests that alternative sources of information do not have a strong enough influence to cancel out the initial anchoring bias created by the presentation order in the results announcement.
Similarly, it is also true that increasing sophistication in how we use technology, including Artificial Intelligence (AI), in deciphering financial results means that we might not in future read the results announcement directly. However, there are two caveats to consider. Firstly, given the way in which the technology currently functions, the order in which financial statements are presented in a results announcement will affect the order in which AI extracts information from this announcement. As long as humans are reviewing the report generated by AI to make decisions, the order in the original document will continue to matter. In contrast, if we use AI to undo all presentation order decisions into a standardised format, we will also eliminate the instances where company management specifically used a presentation order to improve our decision-making. Secondly, it is worth considering that the idea that technology has made the market perfectly efficient dates from the 1960s, before even personal computers were widely available. Yet, research continues to find anomalies in the way financial information is processed despite access to superior technology. This suggests that technological sophistication is unlikely to ever fully eliminate the effect of biases in human decision-making on financial markets.
Therefore, the more important takeaways from research findings such as these are more conceptual. For example, investment processes should be subject to continual improvement and change, no matter how sophisticated we might believe they are. Moreover, we are all susceptible to being influenced by others (to one degree or another) and an assessment of our own objectivity remains an important part of improving investment outcomes. Finally, we can always become better investors as we continue to learn more about how we process information (and how we try to influence each other).
“The best thinking is rethinking”
- Shane Parrish -
1 Badenhorst, W. M., & Von Well, R. (2026). The placement of financial statements. Meditari Accountancy Research, 34(7), 22-52.