Please use this identifier to cite or link to this item: https://hdl.handle.net/10356/104586
Title: When the use of positive language backfires : The joint effect of tone, readability, and investor sophistication on earnings judgments
Authors: Tan, Hun-Tong
Ying Wang, Elaine
Zhou, Bo
Keywords: DRNTU::Business::Finance::Investments
Issue Date: 2014
Source: Tan, H. T., Wang, E. Y., & Zhou, B. (2014). When the Use of Positive Language Backfires: The Joint Effect of Tone, Readability, and Investor Sophistication on Earnings Judgments. Journal of Accounting Research, 52(1), 273-302.
Series/Report no.: Journal of Accounting Research
Abstract: Recent studies document that market participants react positively to the positive language sentiment or tone embedded in financial disclosures, and that investors’ reactions to negative news are more muted with poor disclosure readability. However, while language sentiment and readability co-occur in practice, their joint effects remain largely unexplored. In an experiment with MBA students as participants, we investigate how the effect of language sentiment varies with readability and investor sophistication level. We find that language sentiment influences investors’ judgments when readability is low, but not when readability is high. Specifically, when readability is low, disclosures couched in positive language lead to higher earnings judgments for less sophisticated investors, but lower earnings judgments for more sophisticated investors. These findings show that the main effects of readability and language sentiment documented in prior studies have boundary effects, and may reverse when both variables are jointly considered along with investor sophistication.
URI: https://hdl.handle.net/10356/104586
http://hdl.handle.net/10220/20245
ISSN: 0021-8456
DOI: 10.1111/1475-679X.12039
Schools: Nanyang Business School 
Rights: © 2014 University of Chicago on behalf of the Accounting Research Center. This is the author created version of a work that has been peer reviewed and accepted for publication in Journal of Accounting Research, published by University of Chicago on behalf of the Accounting Research Center. It incorporates referee’s comments but changes resulting from the publishing process, such as copyediting, structural formatting, may not be reflected in this document. The published version is available at: [http://dx.doi.org/10.1111/1475-679X.12039].
Fulltext Permission: open
Fulltext Availability: With Fulltext
Appears in Collections:NBS Journal Articles

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