No. 143: Private Peers’ Disclosure Transparency and Public Firms’ Information Environment

This study examines how private peers’ disclosure transparency affects public firms’ information environment, captured through analyst forecast behavior. Focusing on the most important private firms operating in U.S. industries, we investigate whether private peer disclosure—despite differing substantially from public firm disclosure—is incorporated into analysts’ forecasts. In a cross-sectional analysis, we document lower forecast quality in industries where private peers’ disclosure intensity is low. In contrast, when private peers’ disclosure intensity is high, forecast quality does not differ from that in industries with only public peers. We find consistent results for a subsample of U.S. private peers. Consistent with this interpretation, a difference-in-differences analysis documents increased analyst forecast activity around the disclosure dates of private peers. Together, these findings indicate that analysts incorporate private peers’ information when these peers are both economically important and sufficiently transparent, and highlight that variation in private firms’ disclosure intensity generates heterogenous externalities for public firms. Overall, our evidence supports a cost-benefit trade-off in analysts’ information acquisition, and, by documenting the relevance of private peers’ information for public firms, contributes to the debate on the externalities of private firms’ disclosure transparency.