ABSTRACT: While increased disclosure is helpful in reducing information asymmetry, investors tend to discount firm‐initiated disclosures due to the perception that management may be biased, resulting in lower stock prices. To reduce the perception of bias, assurances by independent auditors can be attached to firm disclosures not typically covered by the traditional audit. However, until recently, it was not technologically feasible to have independent assurances accompany all firm‐initiated disclosures (i.e., expanded assurance). In an experimental study, we investigate whether having assurances accompany all firm disclosures will be perceived by nonprofessional investors with limited business knowledge as helpful in reducing investment risk. We use liberal arts students as proxies for these investors. Findings suggest that participants discount share prices for perceived bias in firm‐initiated disclosures in the absence of independent assurance; however, in the presence of such assurance, participants significantly increase share prices. Mixed support is found for assurance reducing investor variation.

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