Limited Attention Bias in Intra-industry Information Transfers: Evidence from Multi-Industry Segment News

This paper investigates whether investors are attentive to peer firms’ segment disclosures. Prior evidence shows that investors react positively to earnings news announced earlier by other firms in the same industry (“peer firms”). The price reaction indicates spillover based on shared industry fundamentals. In this study, I examine whether investors notice that many peers are multi-industry firms and operate in minor industries unrelated to the business of their own firms. Although peer firms’ segment disclosures reveal industry-specific earnings, evidence suggests that investors react positively to uninformative earnings news from peer firms’ minor segments. When investors’ own firms later announce earnings, there is a predictable price reversal associated with peer firms’ minor-industry news. Furthermore, the positive price reaction to irrelevant minor-industry news and the later price reversal are concentrated in investors with low sophistication. Taken together, my findings are consistent with the average investor paying limited attention to peer firms’ segment disclosures and overreacting to irrelevant news from multi-industry peers