Peer Pressure in Reporting Discretion: Evidence From Bank Holding Company Subsidiaries

Subsidiaries of a firm can use their reporting discretion for several goals, such as earnings comparable to other subsidiaries or that are smooth over time. Prior theoretical work on recognizes the tension among these goals (Holmstrom, 1982; Demski and Sappington, 1974), but empirical has not sufficiently examined it. This study exploits bank holding company setting investigate how navigate competing objectives. I find while own earnings, they also herd around internal peers. Through number cross-sectional analyses, this herding behavior appears consistent with relative performance evaluation motivations. These results provide new insight into prior mixed findings choices companies.