Joint Meeting of the Mid-Atlantic and Northeast Regions

Does Political Uncertainty Obfuscate Narrative Disclosure?

• In Event: Corporate Disclosure

Abstract

We examine the relationship between political uncertainty and firms’ narrative disclosure during conference calls. Using the firm-level political risk of Hassan et al. (2019) to proxy for managers’ perceptions of political uncertainty, we find political uncertainty is positively associated with firms’ complex disclosure. Decomposing linguistic complexity into two latent components—information and obfuscation—we show political uncertainty significantly increases the obfuscation component but has no impact on the information component in narrative disclosure. Additional analysis reveals complex disclosure is motivated by the poor future performance expected of firms amid political uncertainty. These findings are robust to alternative measures of political uncertainty, potential endogeneity concerns, and different estimation methods. Further evidence shows that, during periods of political uncertainty, managers tend to use a more ambiguous tone and to provide scripted and shorter (longer) questions and answers (presentation) in conference calls and more forward-looking information to distract outsiders from current risk exposure.

Author

• Marwa Soliman, University of Ottawa