A cross-language analysis of disclosure properties: Evidence from Hong Kong

Abstract

Using the setting of Hong Kong, we examine how the linguistic properties of financial disclosure differ across languages. We exploit the requirement that firms listed on the Hong Kong Stock Exchange publish annual reports in two languages, English and Chinese. We find that for the same firm, English reports are more positive, convey more uncertainty, and focus more on the past and present and less on the future, than Chinese reports. We also find that English (Chinese) reports are more likely to manage their tone by varying the frequency of positive (negative) words. Finally, the stock market only reacts positively to tone management in Chinese reports. Overall, the results suggest that there are significant and fundamental differences in the linguistic properties of English and Chinese reports and that such differences have material implications for how investors perceive the reports.