Abstract
The SEC requires mutual funds to write disclosures for the average investor using plain English. These requirements make funds’ investment strategies and associated risks transparent and accessible to investors. Improved investor understanding furthers the SEC’s regulation-through-disclosure regime. But our examination of funds’ summary prospectuses—an abbreviated discussion of a fund’s strategies and risks—suggests that funds often fail to meet the plain English standard. Our analysis of all summary prospectuses filed between 2010 and 2020 reveals that mutual funds write long, hard-to-read, and complex disclosures. Importantly, we find that failure to draft disclosures in plain English is more than a technical error. Using a regression model, we find that positive past returns predict easier-to-read disclosures, but an increase in fund risk predicts harder-to-read disclosures. Further, we find that compliance with other metrics of plain English, like short sentences and active voice, predicts easier-to-read disclosures. In other words, compliance in one dimension of plain English writ- ing suggests compliance in other aspects as well.
Repository Citation
Anne M. Tucker and Yusen Xia,
Promise & Peril of Plain English: Mutual Fund Disclosure Readability
, 13 Harv. Bus. L. Rev. 59
(2023),
Available at: https://digitalcommons.law.uga.edu/fac_artchop/1813