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

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.