Are There Externalities of Private Firm News Disclosure? Evidence from Public Firms’ Investment
ABSTRACT This study examines whether and how voluntary news disclosure made by private firms affects investment sensitivities of public peer firms. Analyzing data from U.S. public firms from 1996 to 2018, we discover that public firms’ investment sensitivities intensify in industries with active private firm disclosures; a one standard deviation increase in private firm news disclosure raises public firms’ investment sensitivities by 14.5–17.6 percent. To mitigate endogeneity, we employ instrumental-variable methods, leveraging the staggered implementation of prudent investor rules and enforceability of noncompete agreements. Our results show that these effects are magnified in industries marked by the higher expected industry return volatility and less local newspaper coverage. We find that news from private firms significantly enhances public firms’ investment sensitivities, regardless of its sentiment. This research highlights the crucial role of private firm disclosures in influencing public firms’ investment decisions, enhancing our understanding of information spillovers in corporate disclosure. JEL Classifications: D80; G31; G32; M41.
Authors
- Kevin Tseng (ORCID: https://orcid.org/0000-0002-7005-7016)
- Feng Chen (ORCID: https://orcid.org/0000-0003-4432-6005)
- Yi Ding (ORCID: https://orcid.org/0009-0008-8920-7492)
- Xingqiang Du (ORCID: https://orcid.org/0000-0001-5762-8534)
- Xiaoqiao Wang (ORCID: https://orcid.org/0000-0002-7852-6614)
Institutions
- National Taiwan University (TW)
- Chinese University of Hong Kong (HK)
- University of Toronto (CA)
- Xiamen University (CN)
- Chinese University of Hong Kong, Shenzhen (CN)
Publication Details
- Journal
- The Accounting Review
- Published
- 2025-05-19
- DOI
- https://doi.org/10.2308/tar-2023-0306
- Citations
- 1
- Primary Topic
- Auditing, Earnings Management, Governance
- Type
- article
- Field-Weighted Citation Impact
- 3.91