Some People Say: Linguistic Imprecision in Corporate Disclosures

Imprecise language in corporate disclosures can convey valuable information during uncertain times. To evaluate this possibility, we develop a measure of linguistic imprecision using sentences marked with the “weasel tag” on Wikipedia, which is used to identify vague and unverifiable information. We find that managers use imprecise language in their 10-K disclosures when their firms face greater product market threats or greater financial constraints in equity markets. Consistent with linguistic imprecision capturing managerial information on upcoming positive but yet uncertain prospects, firms that employ high linguistic imprecision exhibit significantly higher subsequent abnormal returns. In addition, firms with high linguistic imprecision subsequently experience greater upside return volatility relative to downside return volatility. After a disclosure with high linguistic imprecision, firms have higher investment opportunities, particularly in intangible assets such as R&D.