The Influence of Communication Channel Interactivity on Investors’ Response to Managements’ Linguistic Choices

Abstract

More firms are now disseminating financial information via the internet, and digital technology allows firms to communicate in a more interactive manner compared to traditional paper-based communication channels. Further, various levels of interactivity exist even within online communication channels. We conduct an experiment to examine how online communication channel interactivity affects investor information processing, as evidenced by investors’ reactions to managers’ linguistic choices within financial disclosures, i.e., term specificity (firm-specific versus general terms) and language extremity (moderately versus extremely positive language). We find that a more interactive channel causes investors to be more sensitive to managers’ linguistic choices, and there is an interactive effect of term specificity and language extremity on investment willingness. Specifically, when managers use moderately (extremely) positive language, investors are more (less) willing to invest in a company with its financial disclosures containing firm-specific (versus general) terms. However, such an interactive effect is much weaker when the communication channel is less interactive. Our findings are important for investors, managers, and regulators to understand how investors’ perceptions and investment decisions could be changed when information is communicated via a more interactive channel.