The spillover effects of MD&A disclosures for real investment: The role of industry competition

We explore whether disclosures in the Management Discussion & Analysis (MD&A) have spillover effects for investment and investment efficiency, and whether spillover effects vary with competition. We focus on the tone of MD&A disclosures and document that the association between a company...

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Bibliographic Details
Published in:Journal of accounting & economics 2020-08, Vol.70 (1), p.101299, Article 101299
Main Authors: Durnev, Art, Mangen, Claudine
Format: Article
Language:English
Subjects:
Competition
Disclosures
Investment
Investment efficiency
Spillover effects
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Summary:We explore whether disclosures in the Management Discussion & Analysis (MD&A) have spillover effects for investment and investment efficiency, and whether spillover effects vary with competition. We focus on the tone of MD&A disclosures and document that the association between a company's investments and the tone of its rivals' MD&A disclosures is positive. Moreover, this association is moderated by competition; it is stronger when firms operate in industries that have lower entry costs, are larger, and have less substitutable products. We obtain similar results for investment efficiency. Overall, our evidence suggests that MD&A disclosures have spillover effects for investment that can improve investment efficiency, and that spillover effects are moderated by industry competition. •Corporate investment and investment efficiency are associated with the tone of rivals' MD&As.•Firms increase investment when rivals' MD&As are more optimistic.•Firms invest more efficiently when rivals provide more information in MD&As.•The effect of rivals' MD&A tone on investment and investment efficiency is moderated by competition.•Rivals' MD&A tone affects investment more when entry costs are lower, industries larger, and products less substitutable.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2020.101299