Can high readability exacerbate the effect of language sentiment on investors' judgments? Can low readability mitigate it? The moderating role of affect
Gay, Evelyn Hui Ting
Date of Issue2017-05-19
College of Business (Nanyang Business School)
Prior accounting studies find that high readability is beneficial for investors, as investors are not influenced by heuristic cues when the disclosure is easily understood, whereas low readability is harmful for investors. I consider the moderating role of affect. Drawing on psychology theories, I predict and find that when affect towards the firm is positive, investors' judgments are influenced by language sentiment when the disclosure is more fluent (i.e. more readable), and no longer influenced by language sentiment when the disclosure is disfluent (i.e. less readable), in line with disfluency theory. I discuss the implications of my findings on research in readability, language, and affect, and the implications for regulators and investors.