Peer Effects in Corporate Disclosure Decisions

• In Event: Information Networks and Aggregation

Abstract

This paper examines whether industry peers’ disclosure affects corporate disclosure decisions. Using an instrumental variable approach, I find evidence that firms are more likely to disclose information if their peers do so, and the marginal effect exceeds that of other known firm-specific determinants in disclosure models. I corroborate the existence of peer effects by showing that managers do not follow peer firm disclosure if they have less discretion over disclosure decisions. In cross-sectional tests, I find that industry followers react to industry leaders’ disclosures but not vice versa. I also examine capital market consequences and find that peer firm induced disclosure is associated with improved stock liquidity and reduced bid-ask spreads. Overall, this study provides an important determinant of corporate disclosure decisions that prior research has not considered and suggests that peer firm disclosure plays an important role in shaping information environment of the firm.

Author

• Hojun Seo, Washington University