Does concrete language in disclosures increase willingness to invest?

Does concrete language in disclosures increase willingness to invest? As part of its push for more plain English in disclosures, the SEC argues that firms should use more concrete language to make abstract concepts clearer to investors. We use two experiments to show that, when concrete language is highlighted in a prospectus, investors are significantly more willing to invest in a firm than when abstract language is highlighted. Furthermore, we show the effect of concrete language is particularly important when investors feel more psychologically distant from a firm. Drawing on psychology theory, we predict and find that concrete language increases investors’ feelings of comfort in their ability to evaluate an investment. Our study contributes to the literature on how language choices in disclosures affect investors’ judgments by demonstrating that a simple, yet potentially powerful reporting tool of emphasizing concrete language may attract investors who may otherwise be reluctant to invest. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Does concrete language in disclosures increase willingness to invest?

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Publisher
Springer US
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Economics / Management Science; Accounting/Auditing; Finance/Investment/Banking; Public Finance & Economics
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-014-9315-6
Publisher site
See Article on Publisher Site

Abstract

As part of its push for more plain English in disclosures, the SEC argues that firms should use more concrete language to make abstract concepts clearer to investors. We use two experiments to show that, when concrete language is highlighted in a prospectus, investors are significantly more willing to invest in a firm than when abstract language is highlighted. Furthermore, we show the effect of concrete language is particularly important when investors feel more psychologically distant from a firm. Drawing on psychology theory, we predict and find that concrete language increases investors’ feelings of comfort in their ability to evaluate an investment. Our study contributes to the literature on how language choices in disclosures affect investors’ judgments by demonstrating that a simple, yet potentially powerful reporting tool of emphasizing concrete language may attract investors who may otherwise be reluctant to invest.

Journal

Review of Accounting StudiesSpringer Journals

Published: Dec 2, 2014

References

  • A review of the empirical disclosure literature: A discussion
    Core, J
  • Beyond the numbers: Measuring the information content of earnings press release language
    Davis, A; Piger, J; Sedor, L
  • Managers use of language across alternative disclosure outlets: Earnings press releases versus MD&A
    Davis, A; Tama-Sweet, I
  • By their words ye shall know them: Language abstraction and the likeability of describers
    Douglas, K; Sutton, R
  • How disaggregation enhances the credibility of management earnings forecasts
    Hirst, DE; Koonce, L; Venkataraman, S
  • Familiarity breeds investment
    Huberman, G
  • The role of supplementary statements with management earnings forecasts
    Hutton, AP; Miller, GS; Skinner, DJ
  • Local does as local is: Information content of the geography of individual investors common stock investments
    Ivković, Z; Weisbenner, S
  • Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan
    Kang, J; Stulz, R

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