Hun?Tong Tan|Elaine Ying Wang|Bo Zhou
When the Use of Positive Language Backfires: The Joint Effect of Tone, Readability, and Investor Sophistication on Earnings Judgments
Nanyang Technological University|University of Massachusetts Amherst
abstract recent studies document market participants react positively positive language sentiment tone embedded financial disclosures investors reactions negative news muted poor disclosure readability however language sentiment readability cooccur practice joint effects remain largely unexplored experiment mba students participants investigate effect language sentiment varies readability investor sophistication level find language sentiment influences investors judgments readability low readability high specifically readability low disclosures couched positive language lead higher earnings judgments less sophisticated investors lower earnings judgments sophisticated investors findings show main effects readability language sentiment documented prior studies boundary effects may reverse variables jointly considered along investor sophistication