Talk in Safe Modes: Firms’ Language Use under Scrutiny

Firms communicate to gain resources and social support from stakeholders with highly diversified interests. Previous research suggests that firms engage in selective disclosure when being under scrutiny, but we know little about how firms under scrutiny change communication patterns, which can be characterized with language volume, language attributes, and language contents. In this study, we propose and test an argument of “talk in safe-modes”: if being highly scrutinized, firms use less voluminous and complex language and communicate in a less self-serving manner. To test our hypotheses, we use the variations in the level of scrutiny that results from U.S. SEC different leaderships and base our analysis upon valid qualitative evidences that Mary L. Schapiro (January 27, 2009 – December 14, 2012) was a stronger enforcer than Mary Jo White (April 10, 2013 – January 20, 2017). Our analysis of high-tech firms’ communication patterns in Form 10-k supports our arguments of “talk in safe-modes.”