Imprecise and Informative: Lessons from Market Reactions to Imprecise Disclosure

Imprecise language in corporate disclosures can convey valuable information on ?firms' fundamentals during uncertain times. To evaluate this idea, we develop a novel measure of linguistic imprecision based on sentences marked with the \weasel tag" on Wikipedia. For a 10-week window following the 10-K disclosure, we ?nd that the use of imprecise language in 10-Ks predicts 1) positive and non-reverting abnormal returns, 2) improvements to stock liquidity, 3) greater intensities of insider and informed buying, and 4) higher news sentiment. These fi?ndings are the strongest when the fi?rm disclosures are more forward looking, and for fi?rms with greater idiosyncratic volatility. Taken together, our fi?ndings imply that the imprecise language in 10-Ks contains new information on positive but yet immature prospects of future cash flow.