Value-Added Statements: Presentation Formats of the Income Statement - From Shareholder to Stakeholder Focus

Abstract

This study empirically investigates the effect on retail investors’ evaluation and perception of corporate value resulting from the presentation of income statements in a stakeholder-focused format, specifically value-added statements (VAS), compared to traditional shareholder-focused formats, such as the nature-of-expense and function-of-expense methods. The aim is to examine whether the evolving preferences of retail investors, characterized by a stronger focus on corporate social responsibility and thus a shift in informational needs, are better addressed by the introduction of VAS or whether traditional formats provide similar or equivalently perceived information.Specifically, the effect of VAS relative to the two traditional presentation formats is examined from three perspectives: (1) an overall assessment of the company as an investment opportunity, and two key components of such evaluation, namely (2) expectations of future cash flows, and (3) perceptions of the company’s societal contribution.The investigation is conducted via an experimental survey, in which respondents are randomly presented with companies shown using one of the three presentation formats and then asked to evaluate them across the three perspectives. This setup manipulates the presentation format, such that each company is shown in three different formats, allowing the effect of the format to be isolated and analyzed. The study was conducted both in person in Copenhagen and online via retail investor forums and regional groups across Denmark.The overall findings indicate that the VAS format leads to higher perceived company value across all three perspectives, with particularly strong effects on expected future cash flows and societal contributions. Furthermore, additional nuances related to specific respondents and company characteristics were found to intensify the effect of VAS. Thus, the study contributes empirical evidence that the presentation format influences perceived corporate value and that VAS enhances this perception, thereby better aligning with retail investors’ demand for stakeholder-related information compared to the traditional formats’ communication of such data.