Do peer narrative disclosures support or disrupt efficient investment?

This study examines whether and how the information content of peer firms' narrative disclosures, captured by the vertical textual similarity (VTS) of peers' MD&As, affects corporate investment efficiency, using data from publicly listed firms in China. We find that lower VTS in peers' MD&As is associated with richer industry-specific information and greater investment efficiency. Importantly, this effect is not driven by the tone of the disclosures. Instead, it operates through two main channels: improved firm transparency and enhanced external monitoring. The effect is more pronounced when disclosures are timelier, the text is more readable, and the competitive or macroeconomic environment is more uncertain. We further show that managers and investors actively incorporate information from peer MD&As into their investment decisions, particularly during periods of industry transition. Notably, peers' MD&As tend to emphasize positive news, which exerts a stronger influence on investment efficiency than negative news. Collectively, our findings reveal a positive spillover effect of MD&A textual disclosures across firms.