Working Paper | 2014

Linguistic Complexity in Firm Disclosures: Obfuscation or Information?

by Brian J. Bushee, Ian D. Gow and Daniel Taylor


Prior research argues that the linguistic complexity of a firm’s disclosures reflects managerial obfuscation. However, complex language can be used either to obfuscate or to convey information, with the effect likely depending on the incentives of the source. We measure the overall linguistic complexity of quarterly earnings conference calls, and decompose it into the portion driven by managers and the portion driven by analysts. Consistent with complex language reflecting obfuscation, we find that manager-driven complexity is associated with lower earnings response coefficients and greater information asymmetry. However, consistent with the possibility that complex language can also reflect information, we find that analyst- driven complexity is associated with higher earnings response coefficients and lower information asymmetry.

Keywords: Communication; Financial Reporting;


Bushee, Brian J., Ian D. Gow, and Daniel Taylor. "Linguistic Complexity in Firm Disclosures: Obfuscation or Information?" Working Paper, January 2014.