Information Flow and Market Efficiency - The Economic Impact of Precise Language
Published in IWH Discussion Papers, No. 13, 2025
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.
Recommended citation: Andreas Barth, Sasan Mansouri, and Fabian Woebbeking (2025). "Information Flow and Market Efficiency - The Economic Impact of Precise Language." IWH Discussion Papers, No. 13. DOI: 10.18717/dpds-2j29.