Linguistic Complexity in Firm Disclosures: Obfuscation or Information?
BRIAN J. BUSHEE, IAN D. GOW, DANIEL J. TAYLOR
Journal of Accounting Research · 2018 · Volume 56 · Issue 1
Abstract
Prior research generally interprets complex language in firms’ disclosures as indicative of managerial obfuscation. However, complex language can also reflect the provision of complex information; for example, informative technical disclosure. As a consequence, linguistic complexity commingles two latent components—obfuscation and information—that are related to information asymmetry in opposite directions. We develop a novel empirical approach to estimate these two latent components within the context of quarterly earnings conference calls. We validate our estimates of these two latent components by examining their relation to information asymmetry. Consistent with our predictions, we find that our estimate of the information component isnegativelyassociated with information asymmetry while our estimate of the obfuscation component ispositivelyassociated with information asymmetry. Our findings suggest that future research on linguistic complexity can construct more powerful tests by separately examining these two latent components of linguistic complexity.
Keywords
D82, G14, G18, M41, M45, disclosure, linguistic complexity, conference calls, information asymmetry
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