Working Paper | HBS Working Paper Series | 2013

Capital Market Consequences of Linguistic Complexity in Conference Calls of Non-U.S. Firms

by Francois Brochet, Patricia L. Naranjo and Gwen Yu

Abstract

We examine how linguistic complexity affects the capital market reaction to information disclosures. We define linguistic complexity as the use of non-plain English stemming from language barriers. Using transcripts from the English-language conference calls of non-U.S. firms, we find that linguistic complexity is positively associated with the language barriers in the firms' home country. We then show that conference calls that are more linguistically complex show lower price movement, lower trading volume, and more dispersion in analyst forecasts following the calls. Our results highlight that when disclosure takes the form of verbal communication, the complexity in the narrative impacts the market reaction to the disclosure.

Keywords: complexity; Voluntary Disclosure; Capital market consequences; Non-plain English; Communication Intention and Meaning; Spoken Communication; Capital Markets; Complexity; Outcome or Result; Cross-Cultural and Cross-Border Issues;

Citation:

Brochet, Francois, Patricia L. Naranjo, and Gwen Yu. "Capital Market Consequences of Linguistic Complexity in Conference Calls of Non-U.S. Firms." Harvard Business School Working Paper, No. 13-033, October 2012. (Revised August 2013, March 2014.)