Peers’ Capex Forecasts and Corporate Investment Efficiency

We propose that peers’ capex forecasts can enhance a firm’s investment efficiency due to managerial and investor learning from these forecasts. The managerial learning view suggests that a firm’s managers can learn from peers’ capex forecasts to make more efficient investment decisions. The investor learning view suggests that capital providers can learn from peers’ capex forecasts to better fund and monitor the firm. We find that firms invest more efficiently when peers provide capex forecasts. Relying on time-series variations of peers and cross-sectional variations in the information content of capex forecasts, we show that the effect of peers’ capex forecasts is likely to be causal. Further cross-sectional analyses provide evidence supporting the managerial learning and investor learning channel. Finally, we document that firms grow their market shares when peers provide capex forecasts, suggesting that there are proprietary costs to peers from providing capex forecasts. Overall, this paper offers new insight into how firms learn from peers’ disclosure to improve their own investment decisions.