Are M.B.A. Students a Good Proxy for Nonprofessional Investors?

Abstract

We investigate a key assumption underlying much of the experimental research in financial accounting that graduate business students are a good proxy for nonprofessional investors. To conduct our investigation, we categorize recent experimental studies in financial accounting, based on the relative level of integrative complexity inherent in each study's task. We then conduct experiments using two tasks, one that is relatively low in integrative complexity and one that is relatively high in integrative complexity, and compare the responses of two groups of M.B.A. students and nonprofessional investors. Our results suggest that using M.B.A. students as a proxy for nonprofessional investors is a valid methodological choice, provided researchers give careful consideration to aligning a task's integrative complexity with the appropriate level of M.B.A. student. M.B.A. students who have completed their core M.B.A. courses and are enrolled in or have completed a financial statement analysis course are a good proxy for nonprofessional investors in tasks that are relatively low in integrative complexity. Though less definitive, the majority of our tests also suggest that these students are a good proxy for nonprofessional investors in tasks that are relatively high in integrative complexity. However, care must be taken when using students in the first-year core financial accounting course. In tasks that are relatively low in integrative complexity, these students perform similarly to nonprofessional investors except when they are asked to make an investment decision. In tasks that are relatively high in integrative complexity, these students acquire information similarly to nonprofessional investors, but they do not appear to integrate the information in a similar manner.

Calisthenics with Words: The Effect of Readability and Investor Sophistication on Investors’ Performance Judgment

“…After controlling for US residency and English as native language, 70% of participants have prior experience investing, and on average, the number of accounting and finance courses completed by these participants are analogous to the number completed by actual average retail investors [21]. Therefore, participants recruited through MTurk are an appropriate proxy of retail investors, once appropriate screening procedures are implemented.…”

Tax Rate Biases in Tax Planning Decisions: Experimental Evidence

“…Likewise, student decision-making does not systematically deviate from that of professionals in accounting and management (Depositario, Nayga, Wu, and Laude 2009, Liyanarachchi 2007, Remus 1996, Ashton and Kramer 1980 if, as in our case, the integrative complexity of an experimental task is low (Elliot, Hodge, Kennedy, and Pronk 2007).…”

Comprehensive income information: a user's perspective

“…As in prior research, MBA students were used as proxies for nonprofessional investors (Maines and McDaniel, 2000;Frederickson and Miller, 2004;Hodge et al, 2004;Elliott, 2006;Fortin and Berthelot, 2012). In fact, Elliott et al (2007) established that second-year MBA students enrolled in or having completed a financial statement analysis course make good proxies for nonprofessional investors in tasks relatively low in integrative complexity. Our particular experimental task fulfils this criterion because the participants were not required to adjust the financial statements in any way before proceeding with their analysis and making their judgements and investment decision.…”

“…Human capital productivity ratio (question I.4) was used to ascertain whether respondents would include actuarial gains and losses in the total compensation figure when computing the denominator. Elliott et al (2007) used this ratio to see whether respondents included the stock-based compensation amount disclosed in the notes for this same purpose. H1 and H2 were tested by asking respondents to use a Likert-type scale (0-10) to make 10 financial analysis judgements and decisions (see Table 2, Section 1, questions I.5 to I.14).…”