A Framework for Mitigating the Effects of Large Number Innumeracy in Corporate Disclosures

ABSTRACT

As corporate disclosures increasingly report figures in the millions, billions, and trillions, large number innumeracy may systematically distort how investors interpret firm performance. This cognitive limitation arises when individuals compress large magnitudes on the mental number line, overestimating absolute values while underestimating differences between them. We introduce large number innumeracy as a distinct perceptual construct in the accounting literature and synthesize cognitive science and accounting research to explain how it may affect investor interpretation of corporate disclosures and why susceptibility likely varies across investor types. We develop a mitigation framework organized by how directly each mechanism addresses the problem: direct approaches alter how values are represented, contextual supports aid interpretation without changing magnitude representation, and interpretive intermediaries shift processing to outside actors or automated tools. We conclude with a research agenda on prevalence, capital market consequences, and mitigation, with implications for disclosure design, investor protection, and market efficiency.

Data Availability: Data are available from the public sources cited in the text.

JEL Classifications: M41; G41; D91; D83.