Policy Uncertainty and Textual Disclosure

We analyze the importance of policy uncertainty to textual disclosure in the U.S. over the 1996 to 2015 period. We find that policy uncertainty increases textual disclosure length, lowers readability, and increases the tone of uncertainty and negativity. Our strong, robust evidence implies that textual disclosure exhibits a systematic component related to policy uncertainty. Additionally, we find that the length effect is exacerbated by high institutional ownership and post-SOX filing, but the readability effect is mitigated by tough external monitoring evident in high analyst coverage and the presence of Big 4 auditors. In another set of results consistent with expectations, we find that tone becomes more uncertain and negative if firms have high government policy sensitivity or high stock price synchronicity amidst policy uncertainty. In additional tests, our results suggest that firms with textual disclosure that is consistent with the information-acceleration expectations enjoy cheaper equity financing costs