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NASD Grants Universities $407K to Improve Investor Information


* ASD Foundation Funds Research, which the NASD established in 2003 to improve

the public's understanding of investing, has just donated $407,240 to two universities to undertake research to help make financial product information more meaningful and more accessible. Out of a pool of 16 colleges and universities that competed, Boston College won a $295,641 grant and the University of Connecticut won $111,599.

Boston College's center for corporate citizenship at the Carroll School of Management won its funding for a project called "Corporate Reporting of Social, Industry Cohort and Governance Information." Associate Professor Jeffrey R. Cohen, Ph.D. will lead this research, which will focus on how non-financial performance measures are reported and how greatly investors value this information.

"The questions that we are asking are quite different from what mainstream disclosure research asks," according to Lori Holder-Webb, a research consultant for the project. "Our goal is to inform the regulatory process pertaining to disclosure by providing information about what investors believe they want, in terms of non-financial performance measures, and whether possession of this information is likely to make a difference in their investment decisions." If so, the Boston College researchers will look into whether the format of disclosure information matters and if it could be improved through standardization.

Once it completes its findings, the team plans on making oral presentations to appropriate agencies, foundations and investor groups, and publishing two academic and practitioner papers.

"It is not so much that we have some theory and want to prove it. It's that we really do not know what is happening, at the theoretical or applied level, and want to investigate it," Holder-Webb said. She also added that the venue for providing the information is going to be one of the main focuses of the study.

The University of Connecticut's department of communication science won its grant for "Effects of Visual Primes on Improving Web Disclosure to Investors," which will be overseen by Assistant Professor of Communication Science Alex Wang.

"We hope this is going to be our chance to educate online investors. There is a great need for the information presented to consumers to be disclosed in an effective way so that their comprehension and retention of information can help them to establish a better decision-making process, in terms of investments," Wang said.

The disclosure of information regarding fees, terms and conditions, and conflict of interest is usually offered to investors, but it is most often in what Wang calls "fine print." Thus, he will set out to determine how many people actually read this fine print. Many times a company has a link to terms and agreement, and a check box below the link. Most people just check the box labeled "I agree" and move on without even glancing at the disclosure information. Wang speculates that most companies provide the disclosure information in this manner because they hope that the investor will neglect to read it.

The University of Connecticut will conduct its research through a Web site that investors will access in person at a usability laboratory on campus. As they browse through the Web site, Wang will be able to see, firsthand, how they react to certain information.

"Proposed experiments will manipulate visual displays of disclosure information on a Web page, affecting investors' preferences, comprehension, retention of disclosure information and investment decision making," according to the university's proposal. In addition, researchers will look at the difference in behavior between expert and beginner online investors.

The first focus of this project will be to determine how to deliver online disclosure information most effectively and whether it can be improved by visual priming. The project's second goal will be to find out whether visual priming enhances investors' preferences, comprehension and retention of disclosure information to help them in their investment decision making.

When asked what he hopes to achieve through this research, Wang said, "We hope that it will be of benefit to both sides. We hope investors will be happier, and companies will be more socially responsible, and that due to the enhanced disclosure, both will continue to do better." Wang believes that through proper disclosure, mutual fund firms will be regarded as more socially responsible, and therefore attract more investors while reinforcing the confidence of existing investors.

The NASD also announced its new grant program for 2006, which will focus exclusively on improving disclosure to investors. Not-for-profit organizations, colleges and universities must submit their proposals to the foundation by April 7.

Investors are inundated with disclosure information and are faced with a real challenge in plowing through it, said John Gannon, vice president and secretary of the foundation. "So, if we can make disclosure information easier to use and help investors retain it better, then we should be able to help them make wiser investment decisions."

Robert R. Glauber, NASD chairman and CEO, added that the foundation will continue to "explore new and improved ways of explaining complicated, yet critical, information to investors in a clear and accurate way."

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