The Interplay between Advertising Disclosures and Financial Knowledge in Mutual Fund Investment Decisions

Abstract

This study examines the relationship between financial disclosures and investors' financial knowledge on investor decision making within the context of mutual fund advertising. Experimental results suggest that mutual fund ads with financial disclosures are more likely to generate higher levels of recall and positive thoughts regarding advertised information for the mutual fund, more favorable attitudes toward the mutual fund, and greater investment intention. Results also suggest that the impact of advertising disclosure on the outcomes of financial behavior (e.g., recall, cognitive response, attitude toward mutual fund, and investment intention) can be moderated by the level of an investor's financial knowledge. Investors with low financial knowledge were likely to systematically process advertising claims and generate more attribute‐related thoughts regarding the advertised mutual fund when exposed to advertising disclosures while advertising disclosures had an insignificant effect on attribute‐related thoughts among investors with high financial knowledge.