Seminar (Dept. of Accounting)

Theme：MD&A’s Linguistic Specificity and Stock Price Synchronicity ——Evidence Based on the Technique of Machine Learning

Speaker：Wei ZHAO, PhD candidate, Business School, Renmin University of China

Time：2021-04-28 10:00

Address：Room 1008, Mingde Business Building

Language：Chinese/English

ABSTRACT:

Specificity and abstractness are key linguistic characteristics. The specificity of language can effectively reduce the threshold of information cognition of the receiver, so as to improve the overall efficiency of information acquisition, integration and processing. To examine the effect of linguistic specificity on the capital market pricing efficiency, we adopt a cutting-edge machine learning approach to calculate the specificity of the management discussion and analysis (MD&A) in annual reports of A-share listed companies from 2003 to 2019. We find that the specificity of MD&A can effectively reduce firm-level stock price synchronicity in the following period. The effect is more prominent when the risk of debt or the volatility of operation is high. Moreover, institutional investors, analysts and media as information intermediaries themselves can play a role in information dissemination, thus weakening the effect of linguistic specificity. Our finding is more prominent in firms with stronger external information demand, less information supply, more readable textual disclosure and low intensity of forward-looking content. As far as we are concerned, we are the first research to construct linguistic specificity based on China stock market, and point out its economic consequences from the perspective of overall market efficiency. Our work is of great significance to the construction of information disclosure system and the development of supervision in China.