No. 242: Real Effects of Aggregate Information: Evidence from Environmental Investments

Firms rely on peer disclosures to guide investments, but it is less well understood whether they respond to aggregate, industry-wide information. This paper examines how firms adjust environmental investments in response to aggregate peer data disclosed in statistical reports. The analysis uses proprietary data covering about 8,000 German firms from 2006 to 2014 and exploits a 2009 disclosure change that affected one investment category. I find that, following the disclosure change, firms increase their emission reduction investments by 25% relative to the other environmental investment categories whose aggregate disclosure remains unchanged. This average effect masks systematic heterogeneity: Firms that invested below (above) the industry average tend to increase (decrease) investments, consistent with the industry mean serving as an informative benchmark. The results are consistent with both learning and coordination motives. Firms appear to update beliefs about appropriate investment levels while also aligning toward a common benchmark. A complementary survey experiment shows that information processing costs limit firms’ ability to fully incorporate statistical reports, indicating meaningful frictions in the use of aggregate information.