The unintended consequence of industry-classified information disclosure: evidence from managerial learning from peer practices

We examine the impact of industry-classified information disclosure (IID) on managerial learning from peers in emerging markets, using a sample of Chinese A-share listed companies from 2009 to 2021. With the help of the external policy of Industry Information Disclosure Guidelines (IIDG), we discover that investment-to-peers’ stock price sensitivity declines with the introduction of the IIDG, suggesting that IID reduces management’s reliance on peer stock prices. This is because IID increases public information and crowds out the private information in peer stock prices, weakening managers’ incentives to learn from them. We further find that the decline in sensitivity is concentrated for focal firms with high industry concentration, growth, and low financing constraints, those listed on the Shenzhen Stock Exchange, and non-SOEs, as well as peer firms with high analyst attention, where management depends more on peer stock prices to make investment decisions. Further analysis illustrates that IID reduces the future performance of firms with more peer-informed trading. Overall, our findings suggest that policies aimed at ‘creating a fair competition environment’ by disclosing insider information may have unforeseen consequences, namely altering the composition of price information relevant to firms’ actual decisions by discouraging the production of private information.