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Study: Sesquipedalian Loquaciousness Used to Mask Investor-Unfriendly Policies

By:
Chris Gaetano
Published Date:
Jan 27, 2016
DictionaryA recent study of 1,665 IPO-related documents from 1995 to 2011 has shown that the less friendly a particular company's policies are to investors (like limits to shareholder amendments), the more those documents will be stuffed to the gills with long, tricky words known only to the most erudite readers, according to The Wall Street Journal. The researchers used computer analysis to comb through IPO documents and search for industry jargon--words with multiple meanings or many syllables, and lengthy sentences, which they classified as “camouflage measure.” The study also searched for important information that had been deeply buried. 
 
The results? Firms with investor-unfriendly policies used these camouflage measures about 109 times more than the average company. The Journal noted that it takes about 19 years of education to understand even an average company document, let alone the dense, jargon-laden documents generated by these companies. 
 
Apparently, this tactic works: the study found that companies using these tricks are less likely to be underpriced by investors. In this respect, David Foster Wallace was right when he wrote in the Pale King that "abstruse dullness is actually a much more effective shield than is secrecy. For the great disadvantage of secrecy is that it's interesting."