Peer Financial Reports and Corporate Cash Policy

Abstract

This study examined the effects of peer financial reports on corporate cash policies. We focus on private European firms below the legal firm-size thresholds for extended reporting requirements and evaluate how the proportion of industry peers with extended reporting mandates influences their cash policies. We document a positive impact of peer reports on cash holdings, in line with an increase in the internal financing capacity to fund investment opportunities disclosed in peer reports. This positive effect is consistently stronger in industries with more growth opportunities, particularly for smaller and more profitable firms. Conversely, peer reports are correlated with lower cash holdings in industries with more volatile cash flows and greater reliance on long-term trade credit. Further analyses reveal limited effects on external financing frictions and agency-driven cash holdings. Overall, the evidence suggests that heterogeneous effects are driven by variations in financing needs and cash flow uncertainty.

Keywords: Information Spillover, Cash Holding, Private Firms, Reporting Regulation M41, M48, G32

JEL Classification: M41, M48, G32.