MORSe Seminar by Ivana Naumovska (INSEAD Business School)

28th of January
12:30-14:00
PC04, Lugano Campus

Title: "LEXICAL TRANSPOSITION IN FINANCIAL MARKETS: THE VALUE OF AMBIGUOUS LANGUAGE IN EARNINGS FORECASTS"

MORSe Seminar by IVANA  NAUMOVSKA (INSEAD Business School). 

Abstract: While clarity and transparency are seemingly and intuitively virtuous features of corporate communication with financial audiences, we examine the possibility that there is also a value in the use of more ambiguous and opaque communication. Specifically, we analyze the situation whereby publicly traded Dutch firms communicate earnings forecasts by engaging in lexical transposition; specifically, by using qualitative quantifiers, i.e., a codified verbal scale known as the Mock scale that consists of seven Dutch adjectives/adverbs that correspond to percentage ranges. We advance an original contingency perspective that specifies the conditions under which financial markets respond more positively to firms’ use of such qualitative quantifiers in their earnings forecasts (i.e., when connoting positive expectations) and when markets will be more positively predisposed to precise quantifiers (i.e., when connoting negative expectations). We find considerable support for our hypotheses using a unique hand-collected dataset of 1630 earnings forecasts to study firms’ use of such lexical transposition in their press- releases, along with the market reactions of investors. We conclude by discussing the implications of our study for research on corporate communication and the strategic value of ambiguity versus precision.

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MORSE Seminars: Management and Organizational Research Seminars by USI Institute of Management (IMA - www.ima.eco.usi.ch)