Does Concrete Language in Disclosures Increase Willingness to Invest?

As part of its push for more plain English in disclosures, the SEC argues that firms should use more concrete language in order to make abstract concepts clearer to investors. In this study, we use an experiment to show that, when concrete language is highlighted in a prospectus, investors are significantly more willing to invest in a firm than when abstract language is highlighted. Further, the effect of concrete language is particularly important when a firm feels more psychologically distant to an investor, either because the firm is located geographically further from the investor, or because the investor is less familiar with the firm's location. Drawing on psychology theory, we predict and find that the effect of concrete language operates by increasing investors' subjective feelings of comfort in their ability to evaluate a prospective investment. Our study contributes to the growing literature on how linguistic choices in corporate disclosures affect investors' judgments and decisions by demonstrating a simple, yet potentially powerful reporting tool of emphasizing concrete language in disclosures for attracting investors who may otherwise be reluctant to invest