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How numeracy mediates cash flow format preferences : A worldwide study

  • 688 students from 9 countries on 5 continents participated in this research. The objective was to ascertain what effects, if any, using the direct or indirect format for the operating activities section of the cash flow statement has, if any, on a loan decision and on the ratings of various attributes of the cash flow statement. Students were pretested on their accounting skills with a few simple calculations, then asked to make the loan decision and finally requested to give their opinion of the financial statements in general and of the statement of cash flows in particular. Format had only a minor effect on the loan decision itself but significantly more favorable comments on user friendliness were received on the direct format than on the indirect. Significant differences were found, however, as regards the loan decisions between the students who had correctly done the calculations and those who had not, to such a degree that the effects of innumeracy became the main contribution to knowledge of this research. We find that the ability to perform accurate calculations, a fundamental foundation of financial numeracy, has an effect on financial decision making that has been ignored in previous studies of financial statement users and uses. This has significant implications for accounting and investing practice, and opens up an important field of research in accounting which can learn from what has already been studied on the effects of innumeracy in the health management field.

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Document Type:Article
Author:G.D. Donleavy, P.M. Poli, T.L. Conover, C.N. Albu, K. Dahawy, G. Iatridis, P. Kiaptikulwattana, P. Budsaratragoon, T. Klammer, S.C. Lai, J.N. Trepat, Henning ZülchORCiD
Chairs and Professorships:Chair of Accounting and Auditing
Parent Title (English):The International Journal of Management Education
Year of Completion:2018
First Page:180
Last Page:192
Tag:Cash flow statement formats; Financial literacy; Framing effects; Loan decisions; Numeracy
Content Focus:Academic Audience
Peer Reviewed:Yes
Rankings:AJG Ranking / 1
SJR Ranking / Q2
Licence (German):License LogoUrheberrechtlich geschützt