Does Concrete Language in Disclosures Increase Willingness to Invest?

42 Pages Posted: 29 Apr 2014  

W. Brooke Elliott

University of Illinois at Urbana-Champaign

Kristina M. Rennekamp

Cornell SC Johnson College of Business

Brian J. White

University of Texas at Austin - Department of Accounting

Date Written: April 28, 2014

Abstract

As part of its push for more plain English in disclosures, the SEC argues that firms should use more concrete language in order to make abstract concepts clearer to investors. In this study, we use an experiment 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. Further, the effect of concrete language is particularly important when a firm feels more psychologically distant to an investor, either because the firm is located geographically further from the investor, or because the investor is less familiar with the firm’s location. Drawing on psychology theory, we predict and find that the effect of concrete language operates by increasing investors’ subjective feelings of comfort in their ability to evaluate a prospective investment. Our study contributes to the growing literature on how linguistic choices in corporate disclosures affect investors’ judgments and decisions by demonstrating a simple, yet potentially powerful reporting tool of emphasizing concrete language in disclosures for attracting investors who may otherwise be reluctant to invest.

Keywords: corporate disclosure, local bias, concrete language, investor comfort, psychological distance

Suggested Citation

Elliott, W. Brooke and Rennekamp, Kristina M. and White, Brian J., Does Concrete Language in Disclosures Increase Willingness to Invest? (April 28, 2014). Available at SSRN: https://ssrn.com/abstract=2430504 or http://dx.doi.org/10.2139/ssrn.2430504

W. Brooke Elliott

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Kristina M. Rennekamp

Cornell SC Johnson College of Business ( email )

Ithaca, NY 14850
United States

Brian J. White (Contact Author)

University of Texas at Austin - Department of Accounting ( email )

Austin, TX 78712
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
321
rank
85,315
Abstract Views
1,479
PlumX