Abstract
Imprecise language in corporate disclosures can convey valuable information on firms’ fundamentals. We evaluate this idea by developing a linguistic imprecision measure based on sentences marked with the “weasel tag” on Wikipedia. In the 10 weeks after the 10-K disclosure, high linguistic imprecision predicts positive and non-reverting abnormal returns, improvements to stock liquidity, more insider and informed buying, and more positive news sentiment. These findings are driven by disclosures that are more forward-looking and use more R&D terms. Together, our results imply that imprecise language in 10-Ks contains new information on positive but yet immature prospects of future cash flows.
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