Is Myopia Contagious? The Effect of Investor Culture on Corporate Disclosure Time Orientation

57 Pages Posted: 9 Mar 2020

See all articles by Francois Brochet

Francois Brochet

Boston University - Department of Accounting

Heather Li

Bentley University - Department of Accountancy

Patricia L. Naranjo

Rice University

Date Written: February 14, 2020

Abstract

We examine the effect of cultural heterogeneity on corporate disclosure time orientation and its capital market consequences. To measure firms’ and investors’ cultural time orientation, we use their home country’s long-term orientation (LTO) and the dominant language future time reference (FTR). Using textual properties of annual reports, we first document that firms use more long-term oriented words and fewer forward-looking statements when their home country and investor base are culturally more long-term oriented and have a weak FTR language. Next, we use firms’ inclusion in the MSCI World Index as an instrument to address causality and find that the investor base’s cultural time orientation affects disclosure time orientation. Lastly, we find through path analysis that the effect of cultural misalignment in long-term orientation on disclosure decreases liquidity and increases cost of equity capital. This result suggests that cultural heterogeneity can induce disclosure-based informational frictions.

Suggested Citation

Brochet, Francois and Li, Heather and Naranjo, Patricia L., Is Myopia Contagious? The Effect of Investor Culture on Corporate Disclosure Time Orientation (February 14, 2020). Available at SSRN: https://ssrn.com/abstract=3537994 or http://dx.doi.org/10.2139/ssrn.3537994

Francois Brochet

Boston University - Department of Accounting ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States

Heather Li (Contact Author)

Bentley University - Department of Accountancy ( email )

175 Forest Street
Waltham, MA 02452
United States

Patricia L. Naranjo

Rice University ( email )

6100 South Main Street
McNair Hall - Room 343
Houston, TX 77005-1892
United States
7133485386 (Phone)

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