Imprecise and Informative: Lessons from Market Reactions to Imprecise Disclosure

67 Pages Posted: 3 Apr 2018 Last revised: 13 Jan 2021

See all articles by J. Anthony Cookson

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Joonki Noh

Case Western Reserve University - Department of Banking and Finance

Date Written: January 13, 2021

Abstract

Imprecise language in corporate disclosures can convey valuable information on firms’ fundamentals. We evaluate this idea by developing a linguistic imprecision measure based on sentences marked with the “weasel tag” on Wikipedia. In the 10 weeks after the 10-K disclosure, high linguistic imprecision predicts positive and non-reverting abnormal returns, improvements to stock liquidity, more insider and informed buying, and more positive news sentiment. These findings are driven by disclosures that are more forward-looking and use more R&D terms. Together, our results imply that imprecise language in 10-Ks contains new information on positive but yet immature prospects of future cash flows.

Keywords: Textual Analysis, 10-K Filings, Wikipedia, Weasel Words, Linguistic Imprecision, Market Reactions, Information Asymmetry, Informed Trading Activity, News Sentiment

Suggested Citation

Cookson, J. Anthony and Moon, Katie and Noh, Joonki, Imprecise and Informative: Lessons from Market Reactions to Imprecise Disclosure (January 13, 2021). Available at SSRN: https://ssrn.com/abstract=3152460 or http://dx.doi.org/10.2139/ssrn.3152460

J. Anthony Cookson

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Katie Moon (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Joonki Noh

Case Western Reserve University - Department of Banking and Finance ( email )

10900 Euclid Ave.
Cleveland, OH 44106-7235
United States
216-368-3737 (Phone)

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