Private Peers’ Disclosure Transparency and Public Firms’ Information Environment

Abstract

This study examines how private peers’ disclosure transparency affects public firms’ information environment. Exploiting the variation in private firms’ importance and the availability of their financial information, we document lower analyst forecast quality when private peer importance in the respective industry is higher. We further find that this association is driven by opaque private peers and primarily manifests when public focal firms’ information availability is relatively poor. Finally, a difference-in-differences analysis shows increased forecast activity for public focal firms around transparent private peers’ disclosure dates. Overall, our findings are aligned with the cost-benefit trade-off that analysts face when acquiring and integrating information. By documenting the relevance of private peers’ disclosure transparency for public firms’ information environment, we contribute to the debate about disclosure mandates for private firms.

Keywords: private firms, disclosure mandates, information externalities, information enrivonment, peer disclosureanalyst forecasts

JEL Classification: D82, G14, M41