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Does peer firms’ tone affect corporate investment? Evidence from China

Author

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  • Chang, Liang
  • Tan, Na
  • Zhang, Xinyue
  • Yuan, Yiyun

Abstract

It is unclear how valuable textual disclosures from peers are to a firm’s investment decisions in emerging markets. Using a dataset of Chinese listed firms from 2007 to 2019, the results show that peers’ MD&A tone has a significant and positive effect on corporate investment, supporting the incremental information content hypothesis in emerging markets. A one standard deviation increase in peers’ tone raises investment by about 5%. Further analyses show the effect of peers’ tone on investment is higher when peers’ disclosure quality is higher, the firm’s management has a stronger motivation to learn, or the industry competitiveness is greater. After addressing the endogeneity problem, ruling out alternative explanations, and a series of robustness tests, the results remain consistent. This paper confirms the value of textual disclosures and enriches the study of their economic consequences in emerging markets.

Suggested Citation

  • Chang, Liang & Tan, Na & Zhang, Xinyue & Yuan, Yiyun, 2023. "Does peer firms’ tone affect corporate investment? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finana:v:90:y:2023:i:c:s1057521923002570
    DOI: 10.1016/j.irfa.2023.102741
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