Information flows among rivals and corporate investment

Bernard, D, Blackburne, T and Thornock, J (2020) Information flows among rivals and corporate investment. Journal of Financial Economics, 136 (3). pp. 760-779. ISSN 0304-405X

Abstract

Using a novel pairwise measure of firms' acquisitions of rivals' disclosures, we show that investment opportunities drive interfirm information flows. We find that these flows predict subsequent mergers and acquisitions as well as how and how much firms invest, relative to rivals. Moreover, firms' use of rivals' information often hinges on the similarities of their products. Our results suggest that rivals' public information, far from being unusable, helps facilitate investment and product decisions, including acquisitions and product differentiation strategies. The findings also support a learning mechanism that could partly underlie the emerging literature on peer investment effects.