Language and Management Forecasts around the World
Posted: 19 Jul 2021
Date Written: July 12, 2021
Speakers of weak future-time reference (FTR) languages perceive the future as closer and more imminent. In this study, we examine the important question of whether the FTR properties of languages spoken by investors affect their demand for forward-looking information, thereby influencing corporate management forecast practices in different countries. We predict that investors who speak weak-FTR languages are more concerned about the future prospects of their investments and the ability of company management to respond to future changes, leading to a greater demand for management forecasts from these companies. We find that firms in weak-FTR language countries exhibit a greater propensity for and frequency of issuing management forecasts and that they also issue more long-horizon forecasts, compared to those in strong-FTR language countries. Our results hold after controlling for other country-level cultural factors. Within the same countries, firms with more foreign institutional ownership from weak-FTR countries issue more (long-horizon) management forecasts than their counterparts. Finally, firms from strong-FTR countries significantly increase their issuance of (long-horizon) management forecasts, after cross-listing their stocks in Germany, a weak-FTR country. This is the first study to examine language FTR as an antecedent to voluntary disclosures. We document a linguistic trait as a novel investor environment factor that shapes corporate voluntary disclosures and explains the cross-country variations in management forecast practices.
Keywords: Language, linguistic relativity principle, future time reference, management earnings forecasts, foreign institutional ownership, cross-listing
JEL Classification: D83, G15, M41, Z13
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