Inter-Temporal Variation in the Externalities of Peer-Firm Disclosures

Abstract

We study inter-temporal variation in the externalities a firm’s disclosures has on its peers. Specifically, we predict and find that peer-firm disclosures have a larger economic effect on the cost of capital when firm-specific information is scarce, but that this effect shrinks as the amount of firm-specific information increases and substitutes for peer information. We conduct our analyses using a sample of private firms that raise public debt for the first time. We find that peer-firm disclosures lower bond yields by 15% for first-time capital raisers in the year of issuance but this effect declines to 2% by the third year post issuance. We corroborate our inference by examining the effect of peer disclosure on the cost of equity capital during initial and subsequent equity offerings. This paper provides novel evidence on inter-temporal changes in the economic consequences of disclosure externalities, which is an important justification for disclosure regulation.