Qualitative Disclosure and Changes in Sell-Side Financial Analysts' Information Environment

Posted: 3 Feb 2015 Last revised: 10 Dec 2015

See all articles by Zahn Bozanic

Zahn Bozanic

Ohio State University (OSU) - Fisher College of Business

Maya Thevenot

Florida Atlantic University

Date Written: March 26, 2015

Abstract

We examine a routine and timely disclosure, earnings press releases, to determine the extent to which several novel qualitative elements of such disclosures are associated with changes in sell-side financial analysts' information environment. Using a comprehensive set of GARCH-based (generalized autoregressive conditional heteroscedasticity) proxies, we examine how disclosure readability's components, across-document textual similarity, and within-document lexical diversity alter analysts' information environment. We find that readability in the form of shorter sentences, textual similarity, and lexical diversity are strongly related to decreases in analysts' uncertainty. Further, shorter sentences and lexical diversity improve both public and private information precision, whereas similarity affects solely analysts' private information precision. While the GARCH-based proxies allow us to alleviate concerns regarding potentially spurious inferences (Sheng and Thevenot 2012), we note as a caveat that such an estimation restricts our inferences to large, stable, and heavily followed firms. These findings should be of interest to analysts who may wish to explore the latent information contained within the qualitative elements of disclosure, regulators who direct the form and content of disclosure, and academics who study the use (and possible misuse) of various forms of information and its presentation.

Keywords: Qualitative disclosure, Earnings press releases, Analysts, BKLS

JEL Classification: M41

Suggested Citation

Bozanic, Zahn and Thevenot, Maya, Qualitative Disclosure and Changes in Sell-Side Financial Analysts' Information Environment (March 26, 2015). Contemporary Accounting Research, Volume 32, Issue 4, pages 1595–1616, Winter 2015. Available at SSRN: https://ssrn.com/abstract=2559155

Zahn Bozanic

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Maya Thevenot (Contact Author)

Florida Atlantic University ( email )

University Tower
220 SE 2 Avenue
Boca Raton, FL 33431
United States

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