Corporate Textual Transparency and Economic Growth

Abstract

Using annual corporate filings by firms headquartered around the world, we measure a country’s corporate textual transparency by four linguistic attributes of readability, specificity, non-boilerplate disclosures, and conciseness. We find corporate textual transparency predicts a country’s economic growth for at least two years, especially for countries with weaker institutions. We further document that corporate textual transparency aggregated from textual attributes of statements on both macro-economic conditions and firm fundamentals predicts economic growth. Additional analysis shows that transparent corporate textual disclosure not only facilitates better estimates of corporate prospects but also reduces market-level information asymmetry and perceived uncertainty, thus facilitating economic activities and contributing to economic growth. Our findings suggest that corporate textual transparency is vital for a country’s information environment and conducive to economic growth.

Keywords: Transparency; Textual Attributes; Economic Growth; Institutions; Information Availability; Quality; Uncertainty.

JEL Classification: E00, E01, G18, M41