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.

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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
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article

Are There Externalities of Private Firm News Disclosure? Evidence from Public Firms’ Investment

Kevin Tseng, Feng Chen, Yi Ding, Xingqiang Du et al.
1 citations
The Accounting Review
Auditing, Earnings Management, Governance
3.91
article

Are There Externalities of Private Firm News Disclosure? Evidence from Public Firms’ Investment

Kevin Tseng, Feng Chen, Yi Ding, Xingqiang Du, Xiaoqiao Wang
article en
1 citations

Abstract

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.

The Accounting ReviewVol. 100(5)
National Taiwan University (TW), Chinese University of Hong Kong (HK), University of Toronto (CA), Xiamen University (CN), Chinese University of Hong Kong, Shenzhen (CN)
Openalex Percentile: Top 8%
Auditing, Earnings Management, Governance
3.91
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