Firm Performance, Reporting Goals, and Language in Narrative Disclosures
53 Pages Posted: 27 Aug 2012 Last revised: 28 Feb 2018
Date Written: February 15, 2018
We use an experiment with experienced managers to provide more-direct evidence on how reporting goals and firm performance influence language choices. We find that bad news disclosures are less readable than good news, but only when managers have a stronger self-enhancement motive. Our results suggest that this difference is driven mainly by attempts to write more readable good news reports as opposed to intentional obfuscation of poor performance. In order to frame poor performance in a positive light, managers also focus more on the future, provide causal explanations for poor performance, and use more passive voice and fewer personal pronouns.
Keywords: textual analysis, readability, narrative disclosure language, causal explanation
JEL Classification: C91, M40, M41
Suggested Citation: Suggested Citation