Copycat Skills and Disclosure Costs: Evidence from Peer Companies’ Digital Footprints

Posted: 8 Nov 2018 Last revised: 13 Nov 2019

See all articles by Sean Cao

Sean Cao

Georgia State University - J. Mack Robinson College of Business

Kai Du

Pennsylvania State University - Department of Accounting; U.S. Securities and Exchange Commission

Baozhong Yang

Georgia State University - Robinson College of Business

Alan L. Zhang

Georgia State University - Robinson College of Business

Date Written: November 8, 2018

Abstract

The empirical challenge of identifying copycats and copycatted firms in a public disclosure setting hinders our understanding of copycat behavior and proprietary costs. We tackle this challenge by tracking the digital footprints of investment companies that view peer companies’ portfolio disclosures on the SEC EDGAR website. We find that, from the voluminous information disclosed by peer firms, copycat firms can identify profitable trades that outperform other disclosed trades by 5.5% annually. Such stock-screening skills stem from their intensive research effort and timely retrieval of peers’ disclosures. More importantly, we find that the proprietary costs to the copycatted disclosing firm are not homogeneous but depend on important contexts unexplored in the prior literature. Copycats inflict greater damage to the performance of the disclosing firm when copycats are sophisticated, when disclosed trading strategies take longer to complete, and when disclosed stock holdings are characterized by high information asymmetry. Overall, our study provides new insights into copycat skills and proprietary costs, with implications for disclosure regulations and managers’ disclosure policies.

Keywords: Copycat, Disclosure, SEC EDGAR, Hedge Fund, Investment Company, Investment Research, Proprietary Cost

JEL Classification: G11, G14, G23

Suggested Citation

Cao, Sean S. and Du, Kai and Yang, Baozhong and Zhang, Liang, Copycat Skills and Disclosure Costs: Evidence from Peer Companies’ Digital Footprints (November 8, 2018). Available at SSRN: https://ssrn.com/abstract=3280744 or http://dx.doi.org/10.2139/ssrn.3280744

Sean S. Cao

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

Kai Du

Pennsylvania State University - Department of Accounting ( email )

University Park, PA 16802-3306
United States

U.S. Securities and Exchange Commission ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Baozhong Yang (Contact Author)

Georgia State University - Robinson College of Business ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States
404-413-7350 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www2.gsu.edu/~fncbyy/index.html

Liang Zhang

Georgia State University - Robinson College of Business ( email )

35 Broad Street NW
Suite 1242
Atlanta, GA 30303
United States

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