The Capital Market Consequences of Language Barriers in the Conference Calls of Non-U.S. Firms

50 Pages Posted: 3 Oct 2012 Last revised: 13 Jan 2016

Francois Brochet

Boston University - Department of Accounting

Patricia L. Naranjo

Rice University

Gwen Yu

Harvard Business School

Date Written: November 1, 2015

Abstract

We examine how language barriers affect the capital market reaction to information disclosures. Using transcripts from non-U.S. firms’ English-language conference calls, we find that the calls of firms in countries with greater language barriers are more likely to contain non-plain English and erroneous expressions. For non-U.S. firms that hire an English-speaking manager, we find less use of non-plain English and fewer erroneous expressions. Calls with a greater use of non-plain English and more erroneous expressions show lower intraday price movement and trading volume. The capital market responses to non-plain English and erroneous expressions are more negative when the firm is located in a non-English-speaking country and has more English-speaking analysts participating in the call. Our results highlight that, when disclosure happens verbally, language barriers between speakers and listeners affect its transparency, which in turn impacts the market’s reaction.

Keywords: Linguistic complexity; Non-plain English; Voluntary disclosure; Capital market consequences; Language barriers

JEL Classification: G14, G15, M41

Suggested Citation

Brochet, Francois and Naranjo, Patricia L. and Yu, Gwen, The Capital Market Consequences of Language Barriers in the Conference Calls of Non-U.S. Firms (November 1, 2015). Accounting Review, Forthcoming; Harvard Business School Research Paper No. 2154948. Available at SSRN: https://ssrn.com/abstract=2154948 or http://dx.doi.org/10.2139/ssrn.2154948

Francois Brochet

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Patricia L. Naranjo

Rice University ( email )

6100 South Main Street
McNair Hall - Room 343
Houston, TX 77005-1892
United States
7133485386 (Phone)

Gwen Yu (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 383
Boston, MA 02163
United States

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