Policy Uncertainty and Textual Disclosure

SYNOPSIS We study how policy uncertainty influences textual disclosure in the U.S. from 1996 to 2015. Consistent with incentives for voluntary disclosure, we find that policy uncertainty increases textual disclosure quantity, as evident in disclosure length, but lowers textual readability and increases the tone of uncertainty and negativity. We also document that the negative impact on readability subsides when firms are subject to tough external monitoring. Finally, we provide evidence implying that investors perceive such disclosure to be valuable, as evident in cheaper equity financing costs under economic policy uncertainty. JEL Classifications: D72; G14; G18; G34.