Peer Financial Benchmarking and Firm Learning: Evidence from a Field Experiment

Abstract

Do firms know how well they are performing? In this paper, we examine the role of peer information on firms’ self-assessed performance using a field experiment with more than 4,500 private firms in Denmark, where financial information is publicly available for all limited liability firms. We randomly provide treatment firms with aggregated information on key financial metrics of their industry peers. Relative to a set of control firms that did not receive this peer information, we find a notable shift in firm satisfaction with their own performance post-intervention. Treatment firms put more weight on their relative performance and less on their absolute performance. We also show that while control firms fixate on the zero-earnings benchmark when assessing their own performance, treatment firms do not, suggesting that the absence of an appropriate benchmark might underlie the zero-earnings discontinuity observed for private firms. Taken together, our results suggest that public disclosure does not ensure the full utilization of information and still leaves private firms using simple heuristics to assess their own performance. They also suggest that the underutilization of peer financial information among private firms can lead to skewed performance perceptions.

Keywords: Disclosure, Peer Information, Performance, Field Experiment, Information Processing, Zero Earnings Discontinuity, Firm Learning, Private Firms

JEL Classification: C39, E24, G30, M41