Peer Effects in Corporate Disclosure Decisions

Abstract

I investigate whether causal peer effects exist in corporate disclosure decisions. Using instrumental variable estimation to eliminate the effects of common shocks, I find that the average disclosure behavior of industry peers positively affects corporate disclosure decisions. The marginal effect of peer firm disclosure exceeds that of most firm-specific disclosure determinants studied in the prior literature. I corroborate the existence of discretionary peer effects by providing evidence that peer effects are absent when the disclosure is non-discretionary. In cross-sectional tests, I find that peer firm disclosure has a stronger impact on a firm’s disclosure decisions when the degree of strategic interactions between the 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 effects shape the corporate information environment.