Policy Uncertainty and Textual Disclosure

Abstract

We analyze the importance of policy uncertainty to textual disclosure in the U.S. over the 1996- 2015 period. Consistent with the strategic-information-revelation view, we find that policy uncertainty increases textual disclosure quantity, as evident in disclosure length, but lowers textual readability and increases the tone of uncertainty and negativity. We also document that the negative impact on readability subsides when firms are subject to tough external monitoring. Finally, we provide evidence implying that investors perceive such disclosure to be valuable, as evident in cheaper equity financing costs under economic policy uncertainty.

Keywords: textual disclosure; policy uncertainty

JEL Classification: D72; G14; G18; G34