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Information flow and market efficiency: The economic impact of precise language

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  • Barth, Andreas
  • Mansouri, Sasan
  • Wöbbeking, Carl Fabian

Abstract

This paper examines the impact of complex yet precise language, particularly financial jargon, on information dissemination and ultimately market efficiency. As a natural laboratory, we analyze the information exchanged during earnings conference calls, where we instrument jargon with the Plain Writing Act of 2010. Our findings suggest that the Act's promotion of plain language usage results in a reduction in complex financial jargon for US firms. However, in contrast to the presumed benefits of accessible language, this reduction in jargon is associated with a decrease in market efficiency, implying that the Act may inadvertently hinder information flow. This finding is particularly important at the juncture where human-generated information is received by machines, which are known to be vunerable to ambiguous inputs.

Suggested Citation

  • Barth, Andreas & Mansouri, Sasan & Wöbbeking, Carl Fabian, 2025. "Information flow and market efficiency: The economic impact of precise language," IWH Discussion Papers 13/2025, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:324642
    DOI: 10.18717/dpds-2j29
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    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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