Copycat Skills and Disclosure Costs: Evidence from Peer Companies’ Digital Footprints
Posted: 8 Nov 2018 Last revised: 13 Nov 2019
Date Written: November 8, 2018
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: Suggested Citation