Income-Moderated Effects of Behavioural Biases on Investment Decisions: Evidence from Indian Individual Investors

Abstract

Accounting-information-use theory traditionally assumes that financial disclosures are interpreted in broadly consistent ways across investor populations. However, emerging evidence suggests that socio-economic heterogeneity may systematically condition how accounting signals are processed and weighted. This study develops and empirically examines an income-conditioned heterogeneous-user framework of accounting-information interpretation, integrating behavioural finance insights into accounting theory. Specifically, we argue that behavioural biases. Temporal Focus, Authority Bias, Echo-Chamber Bias, Hyperbolic Discounting Bias, and Identity Bias do not operate uniformly, but are structurally moderated by income, thereby altering the relative weighting of earnings disclosures, audit signals, governance information, and sustainability reporting. Using primary survey data from 1,216 individual investors in the Indian financial market and a Moderated Ordered Probit Regression model, we estimate both direct and interaction effects between behavioural biases and income categories. The results demonstrate that behavioural predispositions are systematically income-contingent. Temporal Focus significantly enhances reliance on forward-looking accounting information among higher-income investors, while Authority Bias, Echo-Chamber Bias, Hyperbolic Discounting Bias, and Identity Bias exhibit strong income-based heterogeneity in shaping responses to accounting disclosures. Lower-income investors display greater sensitivity to social reinforcement, short-term earnings cues, and identity-congruent governance and sustainability narratives, whereas higher-income investors exhibit greater analytical independence in interpreting authoritative accounting signals. Conceptually, the findings extend heterogeneous-user accounting theory by introducing income-conditioned behavioural weighting as a structural mechanism in disclosure interpretation. The study challenges the implicit homogeneous-user assumption embedded in traditional decision-usefulness frameworks and demonstrates that the effectiveness of financial reporting, assurance communication, and governance disclosures is socio-economically contingent. These results contribute to theoretical developments in disclosure effectiveness, sustainability accounting interpretation, and assurance credibility, particularly within emerging-market contexts characterized by high income dispersion.