Language Barriers in Analyst Reports

This study explores whether language barriers affect investors’ reactions to textual information in analyst reports. To this end, we compare the price reaction to the textual tone in Japanese and U.S. reports and analyze the effect of an English translation on that reaction. We find that prices react significantly to the textual tone in both Japanese and U.S. reports. However, we only observe a statistically significant price underreaction to Japanese reports. Further, the existence of an English translation mitigates this price underreaction. These findings support the view that language barriers induce investors to underreact to textual information.