Copycat Skills and Disclosure Costs: Evidence from Peer Companies’ Digital Footprints
51 Pages Posted: 8 Nov 2018 Last revised: 19 Aug 2020
Date Written: November 8, 2018
The disclosure literature has studied proprietary costs by focusing on the disclosing firms and their disclosure decisions, while offering limited insights into peer companies’ copycatting behavior. In this paper, we examine whether copycats profit from imitating peer companies, the sources of their copycatting skills, and more importantly, under what conditions copycats cause competitive harm and impose proprietary costs on disclosing companies. We identify copycatting companies by tracking the digital footprints of investment companies that view disclosures on the SEC EDGAR website. We find that, from the voluminous peer disclosures, copycat companies are able to identify profitable trades that outperform other disclosed trades by 5.5% annually. Such stock-screening skills are related to their sophistication and the intensity of their research. Finally, we find that proprietary costs are not homogeneous but rather depend on the characteristics of both the copycats and the disclosed information. Copycats inflict greater damage on the performance of disclosing companies when they possess greater skills, when disclosed trading strategies take longer to complete, and when disclosed stock holdings are characterized by high information asymmetry.
Keywords: Copycat, Disclosure, SEC EDGAR, Hedge Fund, Investment Company, Investment Research, Proprietary Cost
JEL Classification: G11, G14, G23
Suggested Citation: Suggested Citation