Peer Effects in Corporate Disclosure Decisions

I investigate whether industry-peer disclosure affects corporate disclosure decisions. Using instrumental variable estimation to distinguish exogenous peer firm disclosure from those driven by common shocks, I show that the exogenous peer firm disclosure is positively associated with corporate disclosure frequency. I find that a one-standard-deviation increase in this peer firm disclosure leads to 42% increase in the standard deviation of the disclosure frequency, which exceeds the marginal effects of most firm-specific disclosure determinants studied in the prior literature. I corroborate the existence of discretionary peer effects by showing that peer effects are absent when the disclosure is non-discretionary. In cross-sectional tests, I find that peer effects are stronger when the intensity of strategic interactions between a firm and its industry peers is higher. I also provide evidence that industry followers respond to industry leaders’ disclosures but not vice versa. Finally, I examine capital-market effects and find that disclosure motivated by peers is associated with improved stock liquidity. Overall, this study highlights an important disclosure determinant and suggests that peer firm disclosure shapes the corporate information environment.