The Search for Peer Firms: When Do Crowds Provide Wisdom?

47 Pages Posted: 2 Nov 2014 Last revised: 7 Nov 2016

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

Date Written: November 2, 2016

Abstract

In knowledge-based economies, many businesses enterprises defy traditional industry boundaries. In this study, we evaluate six "big data" approaches to peer firm identifications and show that some, but not all, "wisdom-of-crowd" techniques perform exceptionally well. We propose an analytical framework for understanding when crowds can be expected to provide wisdom and show, theoretically and empirically, that their efficacy is related to crowd sophistication and task complexity. Consistent with this framework, we find that a "crowd-of-crowds" approach, which combines EDGAR user co-searches and analyst co-coverage, dominates other state-of-the-art methods for identifying investment benchmarks.

Keywords: peer firm, performance benchmarking, EDGAR co-search, analyst co-coverage, wisdom of crowds, crowd of crowds

JEL Classification: D83, G11

Suggested Citation

Lee, Charles M.C. and Ma, Paul and Wang, Charles C. Y., The Search for Peer Firms: When Do Crowds Provide Wisdom? (November 2, 2016). Harvard Business School Accounting & Management Unit Working Paper No. 15-032; Stanford University Graduate School of Business Research Paper No. 14-46; Rock Center for Corporate Governance at Stanford University Working Paper No. 198. Available at SSRN: https://ssrn.com/abstract=2517496 or http://dx.doi.org/10.2139/ssrn.2517496

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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