No. 110: Translation and retail investor perception

Abstract

We examine whether the translation of financial disclosures influences retail investors’ perception of firms as a potential investment. We assess three textual characteristics through which translation could work: readability, tone, and precision. Our novel research design uses a survey experiment with real firm disclosures provided by firms in German and English and employs genuine retail investors. We find that German disclosures are perceived easier to read than their English counterparts, but do not differ in the perception of tone and precision. Surprisingly, better readability does not result in a firm being more attractive as an investment. Our evidence implies that this may be caused by participants finding it relatively difficult to assess readability and precision in real company disclosures. Finally, we analyse how well retail investors’ perceptions correlate with textual measures commonly employed in the accounting literature. We find reasonably high correlations for tone, but not for readability and precision.