Linguistic Information Quality in Customers’ Forward-Looking Disclosures and Suppliers’ Investment Decisions

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)1751-1783
Number of pages33
Journal / PublicationContemporary Accounting Research
Issue number3
Online published26 Nov 2018
Publication statusPublished - 2019


This study examines whether and how linguistic information quality (measured by readability) of customer firms' management earnings forecast reports (MEFRs) affects supplier firms' investment quality (measured by investment efficiency). Our analyses reveal that supplier investment efficiency is positively associated with the average linguistic information quality of customers' prior MEFRs, and the positive association between supplier investment efficiency and customer MEFRs' numerical information quality is stronger in supplier firms with more readable customer MEFRs. Our analyses also reveal that higher linguistic information quality of customer MEFRs improves the monitoring of supplier firms by their outside stakeholders such as institutional investors and financial analysts, and ameliorates the negative impact of suppliers' customer‐dependence on their investment efficiency. Our results suggest that greater linguistic information quality of a customer firm's forward‐looking disclosures is associated with higher‐quality investments made by its suppliers along the supply chain. © CAAA

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