Information Needs of Individual Investors

Because of the nature of the study, it is not possible to make general statements about the information needs of all individual investors. Nor is it appropriate to make absolute claims about the major sources of investment information for individual investors.However, interpretation of the results suggests several tentative conclusions.1. Individual investors use many different factors in the analysis of common stock, but expectational factors dominate.2. The findings support a recent action that permits companies to include voluntary sales and earnings forecasts in reports filed with the SEC. However, more meaningful information than will be provided only by forecasts of sales and earnings is needed by investors in their analyses of common stock.3. User information requirements for investment analysis may very well differ. Comparisons with other research findings suggest that individual investors may have different information needs than professional analysts.4. Individual investors are very dependent upon stockbrokers and advisory services for their investment information.5. Individual investors attach minor importance to financial statements as a source of information.Several implications may be drawn from these conclusions. Investors may do a better job of analysis if they receive the information they consider important. However, providing individuals with more meaningful financial statements and profit forecasts alone is not sufficient. Because expectational factors dominate the analyses of common stock by individual investors, other information such as the business outlook, future condition of the firm and its industry, projected growth rates of sales, earnings and dividends is also needed. Although management cannot supply all this information, it should be able to improve the quality and quantity of information disclosed. Failure to do this not only seems contrary to proper management-user relations, but may also cause an imperfection in the securities markets. "Another implication relates to the broad issue of accounting reports. Accountants should constantly be aware that financial reports should be consistent with the needs of the various classes of investors.Further, the understanding of and requirements for financial information could very well differ widely among the various classes of investors. Nevertheless, the content level of financial reports should not be brought down to the lowest common denominator. The modern corporation is too complex for this, and to do so would constitute a disservice to the information needs of certain classes of relatively sophisticated investors.The possible differing needs of investors present a potential dilemma, which may be resolved, however, by keying financial statements to the needs of the several classes of investors. For the average individual investor, summary types of financial statements as well as general and specific information of the type shown in Table 1 need to be provided. The remainder of the report could be directed to the professional analyst and contain comprehensive financial statements and detailed footnotes and discussion. In this way, accountants could not only continue to strive for clarity and comprehension in financial statements but could also provide information considered relevant by different classes of users.