Peer effects of firm's sustainable transformation: Evidence from textual information analysis of annual financial reports in China

Effective peer effects and their influence channels play a crucial role in a focal firm's decision to pursue sustainability. This article analyzes a dataset comprising 2,098 sample firms over the period from 2011 to 2020, utilizing both textual analysis technology and the reverse maximum matching method to gauge transitions into sustainability (referred to as “sustainable transformation”) based on annual financial reports. Our empirical findings demonstrate significant and positive peer effects within individual industries, as revealed through panel data analysis. Sustainable transformation in peer firms markedly impacts a focal firm's sustainable transformation, primarily through changes in the tone of cross-industry communications, gaps in sustainability among different firms, and the increased attention of analysts. This study may provide valuable insights into the effects of sustainability-related information disclosure among peer firms in certain industries, as well as the mechanisms of information transmission and external pressure associated with peer effects in emerging markets. The results of this work may also offer guidance for policymakers, and market regulators, and firm managers.