Melbourne Accounting Research Seminar - Stella Park

Stella Park from Singapore Management University will present a MARS seminar.

Topic: Firm-Sector Comovement and Disclosure: Theory and Evidence

Abstract: This paper provides theory and empirical evidence that firms with higher firm-sector comovement engage in greater capex forecasting. In our model, greater firm-sector comovement increases the cost for investors to distinguish firm-specific information from sector-wide information, reducing their expected trading profit and increasing the usefulness of disclosures. The model generates two predictions that are supported by data. As comovement increases, firms increase disclosures to compete for investors and improve price and investment efficiency. Disclosures create negative externalities from peer firms who are competing for the same investors, implying a lower improvement in investment efficiency as comovement increases. Our findings support a novel role for disclosures as a tool to compete for traders’ information processing.