Framing of Financial Performance and the Perception of Financial Statement Users

Abstract

The presentation of financial results plays a crucial role in economic decision making, as framing can significantly influence users perceptions even when accounting information is objective. This study investigates how framing financial outcomes as profit (positive frame) or loss (negative frame) affects the evaluation of company performance and decision making by users of financial statements. A mixed method approach was applied, combining theoretical analysis of prospect theory and behavioral finance with the analysis of an empirical experiment. A sample of sixty participants, including economics students and junior accountants, was divided into two groups, each receiving the same financial information presented in a different frame. The results reveal a significant framing effect: participants exposed to the profit frame assessed company performance more positively and were more likely to make favorable investment decisions, while those exposed to the loss frame adopted more cautious evaluations. Financial accounting experience reduced but did not fully eliminate susceptibility to framing. These findings underscore the importance of acknowledging cognitive biases in financial reporting and highlight the need for careful communication of financial information. Awareness of framing effects can enhance decision making, improve transparency, and reduce the risk of misinterpretation of financial results. CZU: 005.216.1:[005.915+657.375.3]; JEL: D81, D03, A1