Analyst Reactions to Accounting and Finance Jargon in Management Disclosure

Münster, T., Schmal, F., Watrin, C.

Zusammenfassung
We investigate the association between technical language in qualitative corporate disclosure and analyst reactions. Using textual analysis, we extract relevant terminology from topic-specific legal documents to develop a word list that identifies words comprising technical accounting- and finance-related jargon. We argue that corporate disclosure using more technical jargon changes the informative value of these documents to stakeholders. Our empirical analysis shows that technical language is negatively associated with analyst outcomes, indicating that accounting- and finance-specific wording increases analysts' information processing costs. We find this effect is less pronounced if disclosures are hard to read but that the quality of processed information does not improve accordingly. Moreover, we find that the time between the fiscal-year end and the publication of the annual report increases in the level of technical language. We conclude that stakeholders perceive technical language as increasing the complexity of qualitative corporate disclosure more than its informative value.

Schlüsselwörter
textual analysis; financial reporting; qualitative disclosure; analyst responses