Voluntary Involuntary Disclosure.

Abstract

Prior examination of financial disclosures associates increasing linguistic complexity with poor firm performance, but cannot differentiate between competing signaling and managerial obfuscation hypotheses. In order to assess whether the lexical properties of written language signal discloser quality, I analyze borrower submitted free-form descriptions of anonymous peer-to-peer loans and find that borrower misspellings predict lower funding rates, longer time to fund, higher default rates, and lower yields to lenders. My findings suggest that the lexical properties of writing are a signal of the writer’s quality.