Does concrete language in disclosures increase willingness to invest?
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As part of its push for more plain English in disclosures, the SEC argues that firms should use more concrete language to make abstract concepts clearer to investors. We use two experiments to show that, when concrete language is highlighted in a prospectus, investors are significantly more willing to invest in a firm than when abstract language is highlighted. Furthermore, we show the effect of concrete language is particularly important when investors feel more psychologically distant from a firm. Drawing on psychology theory, we predict and find that concrete language increases investors’ feelings of comfort in their ability to evaluate an investment. Our study contributes to the literature on how language choices in disclosures affect investors’ judgments by demonstrating that a simple, yet potentially powerful reporting tool of emphasizing concrete language may attract investors who may otherwise be reluctant to invest.
KeywordsCorporate disclosure Local bias Concrete language Investor comfort Psychological distance
JEL ClassificationM41 D83 C91 G02
We thank Tim Bauer, Rob Bloomfield, Jason Brown, Max Hewitt, Frank Hodge, Pat Hopkins, Joseph Johnson, Lisa Koonce, Susan Krische, Bob Libby, Mark Nelson, Mark Peecher, Stephen Rowe, Nick Seybert, D. Shores, and seminar participants at Cornell University, Indiana University, London Business School, Texas Tech University, the University of Central Florida, the University of Illinois at Urbana-Champaign, the University of Massachusetts-Amherst, the University of Maryland, and the University of Washington for helpful comments. We also thank Steph Grant, Zheng Leitter, and Ben Van Landuyt for research assistance and Andy Warfel for graphic design work.
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