Impact of social capital on tone ambiguity in banks’ 10-K filings

We examine whether the social capital index of the county where the bank is headquartered is associated with the ambiguity of tone measures constructed from the textual analysis of banks’ 10-K filings. We hypothesize and find that banks located in high social capital areas exhibit lower ambiguous tone in their 10-K filings. Furthermore, the impact of social capital on management’s 10-K disclosure for banks located in high social capital areas is not mitigated during recessionary periods when management may have more unfavorable news to report. Unlike other studies that suggest that social norms can be forsaken when motive and opportunity exist, our results suggest that social capital is reasonably entrenched in banks’ reporting. In contrast, we find that banks located in low social capital areas report more ambiguously during recessionary periods when management may have to report unfavorable news.