Mandatory Disclosure and Peer Firms' Learning From Stock Prices

ABSTRACT Theory posits that mandatory disclosure influences peer firms' learning from stock prices in two non‐mutually exclusive ways: intra‐industry information transfers and the reallocation of information acquisition efforts. Using mandatory segment disclosure as our setting, we document a decrease in investment‐ q sensitivity for peers of disclosing firms. This effect is stronger among peers with greater economic links to disclosing firms and peers with the greatest incentives to glean information from prices. Our findings provide novel evidence that mandatory disclosure can have significant negative externalities on peer firms' investment efficiency via a managerial learning from the stock price channel. These insights inform regulators assessing the economic consequences of mandatory disclosure, while also assisting managers who rely on information from stock prices to guide investment decisions.