Causes and Consequences of Linguistic Complexity in Non-U.S. Firm Conference Calls

We examine the determinants and capital market consequences of linguistic complexity in conference calls held in English by non-U.S. firms. We find that linguistic complexity is positively associated with the language barrier in the firms’ home country. Also, linguistic complexity in firms’ conference calls affects the extent to which the capital market reacts to the information releases. Firms with more linguistic complexity in their conference calls show less trading volume and price movement following the information releases, after controlling for the actual earnings news. Further, the capital market’s response to linguistic complexity is more pronounced when there is greater implicit (as captured by the presence of foreign investors) or explicit (as captured by how actively analysts ask questions) demand for the English conference calls. This suggests that the form in which financial information is presented can impose additional processing costs by limiting investors’ ability to interpret the reported financials. We are grateful for helpful comments by seminar participants at London Business School. We acknowledge financial support from the Division of Research at the Harvard Business School. Patricia Naranjo is also grateful for financial support from the Deloitte & Touche Foundation and from MIT Sloan School of Management. All errors are our own.