14:15 - 15:45
Information Flow and Market Efficiency - Unintended Side Effects of the Plain Writing Act
This paper investigates the impact of precise language on market efficiency by examining the interplay between regulatory language simplification, as imposed by the Plain Writing Act of 2010, and information asymmetries in financial markets.
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Sasan Mansouri is an Assistant Professor of Digitalization and AI in the Department of Accounting and Auditing at the University of Groningen, Faculty of Economics and Business. His work spans across various domains, including financial data science, information intermediaries, entrepreneurial finance, and sustainability.
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This paper investigates the impact of precise language on market efficiency by examining the interplay between regulatory language simplification, as imposed by the Plain Writing Act of 2010, and information asymmetries in financial markets. We posit that financial jargon, while often criticized as complex, plays a pivotal role in facilitating efficient information dissemination within the market. Analyzing earnings conference call text data, we employ an instrumental variable event study framework to evaluate the consequences of the Plain Writing Act. Our findings suggest that the Act's promotion of plain language usage results in a reduction of financial jargon. Paradoxically, this reduction in jargon is associated with a decrease in market efficiency, implying that the Act may inadvertently hinder information flow and impair the market's price setting mechanism.
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