Policy Uncertainty and Textual Disclosure

60 Pages Posted: 9 Aug 2017 Last revised: 24 Mar 2019

See all articles by Liangliang Jiang

Liangliang Jiang

Hong Kong Polytechnic University

Jeffrey Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: March 14, 2019

Abstract

We analyze the importance of policy uncertainty to textual disclosure in the U.S. over the 1996 to 2015 period. We find that policy uncertainty increases textual disclosure length, lowers readability, and increases the tone of uncertainty and negativity. Our strong, robust evidence implies that textual disclosure exhibits a systematic component related to policy uncertainty. Additionally, we find that the length effect is exacerbated by high institutional ownership and post-SOX filing, but the readability effect is mitigated by tough external monitoring evident in high analyst coverage and the presence of Big 4 auditors. In another set of results consistent with expectations, we find that tone becomes more uncertain and negative if firms have high government policy sensitivity or high stock price synchronicity amidst policy uncertainty. In additional tests, our results suggest that firms with textual disclosure that is consistent with the information-acceleration expectations enjoy cheaper equity financing costs.

Keywords: Textual Disclosure; Policy Uncertainty

Suggested Citation

Jiang, Liangliang and Pittman, Jeffrey A. and Saffar, Walid, Policy Uncertainty and Textual Disclosure (March 14, 2019). Available at SSRN: https://ssrn.com/abstract=3015420 or http://dx.doi.org/10.2139/ssrn.3015420

Liangliang Jiang

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Jeffrey A. Pittman

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada
709-737-3100 (Phone)
709-737-7680 (Fax)

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

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