Geographic Peer Effects in Management Earnings Forecasts

Abstract

We find that the likelihood that a firm voluntarily provides an earnings forecast is sensitive to the extent to which other firms in the same geographic area provide earnings forecasts. This geographic peer effect in forecasting is stronger for firms with greater exposure to local institutional investors, and when firms do forecast, liquidity improves more when a larger fraction of their geographic peers forecast. Further, we use instrumental variable techniques to help alleviate the concern that these geographic peer effects are driven by omitted local economic factors that can lead firms to make similar disclosure decisions. Overall, our findings suggest that geographic peer effects in disclosure choices arise in part due to firms responding to capital market incentives created by local investors.