The Art Of Speaking: Do Readability And Language Tone Matter For Chinese Firms

As with numerical financial information,the quality of narrative information in the financial reports of listed companies is also related to the reasonableness of the investment decisions made by the investors.For investors,the financial reports of listed companies is vital to understand the situation of listed companies,and it is the most important source of information.The efficiency of information transfer between companies and investors also determines the efficiency of capital markets to a certain extent.While most academic research focuses on the quantitative content of financial disclosure for example earnings announcements,but it is noteworthy that usually the financial disclosures are also accompanied by qualitative information.In recent years,this issue has attracted more and more researchers in corporate finance field.Our paper mainly concerned about the information disclosure of Chinese cross-listed firms in the United States.For the foreign firms which cross-listed on the U.S.but incorporates in their home country or mandated by domestic regulatory,their Form 6-K serves as a bridge between the company's investors and publishes information about the firm's management,firm performance,and other major issues to all investors.The quality of Form 6-K is critical as it can attract more investors,stabilize the stock market price,and contribute to the firm's further development.At the same time,it can be equally vital for ordinary investors.It can make investors' investment decisions more effective and allow their funds to flow to blue-chip firms for more dividends and returns.Therefore,the textual analysis of firms' Form 6-K is of vital importance and practical value.In this paper,we employed the textual analysis method,event study method and OLS regression method.The main objects of our research is 331 Form 6-K samples of9 Chinese cross-listed firms in the U.S.,from year 2008 to 2014.We examined SEC Form 6-K to determine whether Chinese firms reports' disclosure language and descriptive words are significantly related to the market reaction and whether the information in Form 6-K provides relevant information to investors.The results are conclusive concerning the relevance of this information to investors,the absolute cumulative abnormal returns shows significance during three days after the 6-K filing date.Other tests were performed to determine whether therewas a difference between the relevance of the information during different event windows.These tests did reveal a significant difference.Overall,our results indicate that SEC Form 6-K contains timely,financial information for foreign investors.Finally,combining our empirical research results,some suggestions are put forward for cross-listed companies on how to improve the readability and language tone of the Form 6-K or other kinds of narrative reports,and suggestions on how can non-professional investors improve their reading ability and comprehension skills are also proposed,and we also put forward ideas to ameliorate the capital market.We did several contributions to previous studies.First of all,we expand the research field of narrative disclosures through choosing Form 6-K of Chinese firms;we combined two aspects of qualitative disclosures together to test the content of Form 6-K;then,we employed updated sample data compared to other related research;thirdly,we employed three readability indexes to measure the reading ease of the narrative reports.Through this way,we could make the results more robust and reliable;fourthly,the model to calculate the abnormal returns in our paper is CAPM model,which is more accurate and reliable than most of other models.Due to the limited time and limited research ability,our research still exists deficiencies such as small sample size and potential endogeneity of the regression model.These limitations need to be deeply explored in future research.