Knowledge that Transforms

This paper examines whether and how the peer information environment – generated by peer firms’ disclosures and by the information intermediaries covering them – affects the CEO’s delegation of decision rights to division managers (DMs). Using an international survey dataset, I measure within-firm delegation of decision-making over capital investment, human capital investment, investment in new products, and sales. I find that CEOs delegate more to managers of divisions in country-industries with richer peer information environments. Cross-sectional tests highlight three underlying channels. Specifically, the results suggest that peer information (i) helps the CEO acquire information to reduce potential information disadvantages relative to DMs (CEO learning), (ii) mitigates CEO-DM agency frictions (agency mitigation), and (iii) provides DMs with relevant information to make better decisions (DM learning). While CEO learning reduces delegation, agency mitigation and DM learning increase it. These findings provide evidence that information about peers influences the internal organization of firms.

We examine the direct and indirect effects of transparency regulation on economic activity. Using two distinct sources of regulatory variation—the varying extent of financial-reporting requirements and the staggered introduction of electronic business registers in Europe—, we find that direct exposure to transparency regulation tends to hurt focal firms’ economic activity (e.g., production and employment). By contrast, we find that indirect exposure to transparency regulation imposed on other related firms tends to help focal firms’ economic activity. In terms of relative magnitudes, we find that the negative direct and positive indirect effects tend to be of similar size, almost perfectly offsetting each other. Collectively, our evidence suggests that transparency regulation appears to primarily reallocate economic activity from more toward less regulated markets rather than help or hurt aggregate economic activity.