| Summary: | This study aimed to examine the effect of preparation of the risk by
banking companies in Indonesia to investment decisions. Liability preparation
of risk is part of the policy of PSAK No. 60 in 2010. The PSAK requires
banking companies in Indonesia to prepare a risks report both qualitatively and
quantitatively. The study also aimed to test the theory of Probabilistic Mental
Model (PMM) as an explanation of the framing effect in the context of
information reporting and presentment of risk in different formats.
The research was conducted by on-line field experiment which involved
54 investment analysts as participants. Experiments carried out to test whether
different risk information formats (sensitivity analysis, value at risk, and tabular
format) - given in sequential time related to the framing effect described
through the framework of the PMM - can affect investment decision-making
process.
The results showed that the participants in this study chose to perform
actions that are not at risk when information is presented in a positive frame
and less risky decisions when information is presented in a negative frame.
Information accompanying the gains or losses of information risk in
experimental instrument does not affect the investment decisions that they do.
In addition, the participants in this study provide a better appreciation of the
company that reported the full risk report (qualitative and quantitative) as
compared to a company that just reported a qualitative risk alone. The
additional quantitative information also increases the confidence of participants
in formulating investment decisions. The finding also showed that most
participants chose tabular format as the format of risk information that is
considered the most informative and could improve their ability to perform
investment analysis.
Further research experimental study can be done not only consider the
frame of accounting information for investment decisions, but also consider the
effect of the content of the information accounting for the investment decisions,
involving analysts or investors, both individual and institutional.
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