Some People Say: Linguistic Imprecision in Corporate Disclosures

58 Pages Posted: 3 Apr 2018 Last revised: 24 Oct 2018

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Joonki Noh

Case Western Reserve University - Department of Banking and Finance

Date Written: October 22, 2018

Abstract

Imprecise language in corporate disclosures can convey valuable information during uncertain times. To evaluate this possibility, we develop a measure of linguistic imprecision using sentences marked with the “weasel tag” on Wikipedia, which is used to identify vague and unverifiable information. We find that managers use imprecise language in their 10-K disclosures when their firms face greater product market threats or greater financial constraints in equity markets. Consistent with linguistic imprecision capturing managerial information on upcoming positive but yet uncertain prospects, firms that employ high linguistic imprecision exhibit significantly higher subsequent abnormal returns. In addition, firms with high linguistic imprecision subsequently experience greater upside return volatility relative to downside return volatility. After a disclosure with high linguistic imprecision, firms have higher investment opportunities, particularly in intangible assets such as R&D.

Keywords: Textual analysis, 10K filings, Wikipedia, Weasel words, Linguistic Imprecision, Product markets, Financial constraints

Suggested Citation

Cookson, J. Anthony and Moon, Katie and Noh, Joonki, Some People Say: Linguistic Imprecision in Corporate Disclosures (October 22, 2018). Available at SSRN: https://ssrn.com/abstract=3152460 or http://dx.doi.org/10.2139/ssrn.3152460

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Katie Moon (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Joonki Noh

Case Western Reserve University - Department of Banking and Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States
216-368-3737 (Phone)

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