Pragmatics, Implicature and the Efficiency of Elevated Disclosure

21 Pages Posted: 16 Nov 2011 Last revised: 19 Dec 2011

See all articles by Robert J. Bloomfield

Robert J. Bloomfield

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: December 2011

Abstract

This paper uses a Pragmatic theory of language (drawn from philosophy and linguistics) to diagnose the causes of excessive and inefficient financial disclosure and propose a regulatory solution. The diagnosis is that existing regulations are effective at encouraging firms to adhere to some, but not all, of the Maxims of Conversation identified by Pragmatics. Regulations encourage firms to disclose any information that might be relevant, but are ineffective in discouraging excessive disclosure of information that is of little relevance given what investors already know. This one-sidedness makes financial disclosures inefficient by limiting the ability for investors to infer that items the firm chooses not to disclose are not particularly important (an inference Pragmatic theorists call “implicature”). The solution is to encourage or require firms to supplement comprehensive disclosures with an “elevated” disclosure that is brief enough to force firms to be selective in choosing what information to include. Regulations can enhance implicature through rules that prohibit firms from elevating disclosures that are less newsworthy than disclosures that are not elevated, thereby enhancing the information conveyed to investors through implicature.

Keywords: Corporate Disclosure, Information Overload, Financial Accounting Standards, FASB Disclosure Framework, Language and Economics

JEL Classification: G14, G38, M40, K22

Suggested Citation

Bloomfield, Robert J., Pragmatics, Implicature and the Efficiency of Elevated Disclosure (December 2011). Johnson School Research Paper Series No. 48-2011, Available at SSRN: https://ssrn.com/abstract=1960075 or http://dx.doi.org/10.2139/ssrn.1960075

Robert J. Bloomfield (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

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