Keeping Up With the Joneses : Peer Pressure Effects in Voluntary Disclosure Choices

We investigate the impact of peer pressure on the characteristics of forward-looking disclosures. We identify plausibly exogenous variation in the amount of peer firm forecast news available when a focal firm issues its own forecast by employing a sample of firms that issue forecasts in predictable patterns. We find that when more of a focal firm’s peers have previously forecasted good news, the focal firm’s own forecast is positively biased and less accurate. The propensity for focal firms to disclose optimistic forecasts is stronger when (1) its peers issue competitive news rather than industry-wide news, (2) previously disclosing peers are market leaders, and (3) the focal firm’s forecasts are for longer horizons. Additional analyses suggest optimistic managers walk down their previously issued optimistic forecasts, and results are consistent with focal firms who succumb to peer pressure suffering reputational consequences as evidenced by muted analyst forecast revisions in the year after issuing a peer-pressure biased forecast. Supplemental tests are consistent with managers making strategic disclosure choices rather than exhibiting a behavioral bias. Finally, our results extend to the text of earnings announcements, as managers respond to peer pressure by discussing more quantitative aspects of the future and using more certainty language. Overall, our findings highlight the role of peer pressure as a determinant of firms’ forward-looking disclosure