Imprecise and Informative: Lessons from Market Reactions to Imprecise Disclosure
67 Pages Posted: 3 Apr 2018 Last revised: 13 Jan 2021
Date Written: January 13, 2021
Imprecise language in corporate disclosures can convey valuable information on firms’ fundamentals. We evaluate this idea by developing a linguistic imprecision measure based on sentences marked with the “weasel tag” on Wikipedia. In the 10 weeks after the 10-K disclosure, high linguistic imprecision predicts positive and non-reverting abnormal returns, improvements to stock liquidity, more insider and informed buying, and more positive news sentiment. These findings are driven by disclosures that are more forward-looking and use more R&D terms. Together, our results imply that imprecise language in 10-Ks contains new information on positive but yet immature prospects of future cash flows.
Keywords: Textual Analysis, 10-K Filings, Wikipedia, Weasel Words, Linguistic Imprecision, Market Reactions, Information Asymmetry, Informed Trading Activity, News Sentiment
Suggested Citation: Suggested Citation