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http://ssrn.com/abstract=2171497
 
 

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Search Based Peer Firms: Aggregating Investor Perceptions through Internet Co-Searches


Charles M.C. Lee


Stanford University - Graduate School of Business

Paul Ma


University of Minnesota - Carlson School of Management

Charles C. Y. Wang


Harvard Business School

July 2, 2014

Journal of Financial Economics (JFE), Forthcoming
Rock Center for Corporate Governance at Stanford University Working Paper No. 128
Harvard Business School Accounting & Management Unit Working Paper No. 13-048

Abstract:     
Applying a “co-search” algorithm to Internet traffic at the SEC's EDGAR web-site, we develop a novel method for identifying economically-related peer firms and for measuring their relative importance. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search-Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms' out-of-sample: (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification, and are more dynamic, pliable, and concentrated. We also show that co-search intensity captures the degree of similarity between firms. Our results highlight the potential of the collective wisdom of investors ― extracted from co-search patterns ― in addressing long-standing benchmarking problems in finance.

Number of Pages in PDF File: 58

Keywords: peer firm, EDGAR search traffic, revealed preference, co-search, industry classification

JEL Classification: D83, G0, M2

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Date posted: November 6, 2012 ; Last revised: October 5, 2014

Suggested Citation

Lee, Charles M.C. and Ma, Paul and Wang, Charles C. Y., Search Based Peer Firms: Aggregating Investor Perceptions through Internet Co-Searches (July 2, 2014). Journal of Financial Economics (JFE), Forthcoming; Rock Center for Corporate Governance at Stanford University Working Paper No. 128; Harvard Business School Accounting & Management Unit Working Paper No. 13-048. Available at SSRN: http://ssrn.com/abstract=2171497 or http://dx.doi.org/10.2139/ssrn.2171497

Contact Information

Charles M.C. Lee
Stanford University - Graduate School of Business ( email )
Stanford Graduate School of Business
655 Knight Way
Stanford, CA 94305-5015
United States
650-721-1295 (Phone)

Paul Ma
University of Minnesota - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
HOME PAGE: http://www.paulma.org
Charles C. Y. Wang (Contact Author)
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
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