starlightz
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- Nov 2, 2021
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Summary: Financial writing is dense with jargon and complexities. However, studies show that investors prefer simple, clear writing with short sentences. The simple reason is that complex writing is unappealing — people tune out and find it boring, as neuroscience research confirms. The author examines a number of studies on the financial value of good writing and provides a few pointers for businesses looking to communicate more clearly with investors or anyone else.
Researchers have confirmed that writing simply and directly in disclosures such as 10-Ks can help you attract more investors, lower the cost of debt and equity, and even save money and time on audits.
Kristina Rennekamp, an accounting professor at Cornell, conducted a seminal experiment that documented some of the consequences of poor corporate writing. Working with corporate press release readers, she demonstrated that companies risk losing readers due to poor "processing fluency" of their documents. Psychologists and neuroscientists use "processing fluency" as a readability metric.
In an experiment, Rennekamp asked participants to rate two versions of financial press releases. One was a soft drink company's actual release. The other was a simple language edit recommended by the SEC's Plain English Handbook. The handbook, which is essentially a guide to improving fluency, contains principles that are now used as a standard by researchers to measure readability.
To be sure, scientists don't know everything about better motivating readers. The majority of fluency research is based on correlation. The correlation between readability and financial gain suggests but does not prove a cause-and-effect relationship. In this regard, the current crop of studies had an advantage. Three of them investigated the year-over-year improvement in disclosures following the implementation of the SEC rule in 1998. This one-time event tended to isolate readability as a factor, and data from this time period did suggest that fluency causes financial gain.
Less advertising: Use powerful verbs and words. Like a sneeze at the opera, adverbs and adjectives frequently obstruct understanding.
Take it apart: Break up long, dense sentences and thoughts. The period never comes fast enough, as a pro once said.
Cut warnings: There are exclusions to every claim. Every subject requires context. Still, try to limit the use of fig leaves and hedging unless you're directly noting disclaimers.
Remove leftovers: You will revise, reaffirm, reiterate, and reassert with each new draft. Go back and remove any unnecessary language.
Don't write more than what your audience requires; keep it brief.
Keep one thing in mind when you sit down to write next. It's what we might refer to as the Levitt principle: the pay scale increases with word simplicity.
Researchers have confirmed that writing simply and directly in disclosures such as 10-Ks can help you attract more investors, lower the cost of debt and equity, and even save money and time on audits.
Kristina Rennekamp, an accounting professor at Cornell, conducted a seminal experiment that documented some of the consequences of poor corporate writing. Working with corporate press release readers, she demonstrated that companies risk losing readers due to poor "processing fluency" of their documents. Psychologists and neuroscientists use "processing fluency" as a readability metric.
In an experiment, Rennekamp asked participants to rate two versions of financial press releases. One was a soft drink company's actual release. The other was a simple language edit recommended by the SEC's Plain English Handbook. The handbook, which is essentially a guide to improving fluency, contains principles that are now used as a standard by researchers to measure readability.
To be sure, scientists don't know everything about better motivating readers. The majority of fluency research is based on correlation. The correlation between readability and financial gain suggests but does not prove a cause-and-effect relationship. In this regard, the current crop of studies had an advantage. Three of them investigated the year-over-year improvement in disclosures following the implementation of the SEC rule in 1998. This one-time event tended to isolate readability as a factor, and data from this time period did suggest that fluency causes financial gain.
Less advertising: Use powerful verbs and words. Like a sneeze at the opera, adverbs and adjectives frequently obstruct understanding.
Take it apart: Break up long, dense sentences and thoughts. The period never comes fast enough, as a pro once said.
Cut warnings: There are exclusions to every claim. Every subject requires context. Still, try to limit the use of fig leaves and hedging unless you're directly noting disclaimers.
Remove leftovers: You will revise, reaffirm, reiterate, and reassert with each new draft. Go back and remove any unnecessary language.
Don't write more than what your audience requires; keep it brief.
Keep one thing in mind when you sit down to write next. It's what we might refer to as the Levitt principle: the pay scale increases with word simplicity.
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