Competition Management in Corporate Filings

Assaf Eisdorfer

University of Connecticut

Competition Management in Corporate Filings

This paper demonstrates that public firms tend to over-state their competition position by listing much larger firms as their direct competitors in their SEC 10-K filings, even if they operate in different industries and produce different products.

This behavior is more prevalent in firms whose executives’ compensations are more closely tied to the value of firm equity. Over-positioning leads to temporarily high stock returns, as well as high executive compensation and high takeover likelihood, yet it is not coupled with a significant improvement in firm fundamentals, such as asset value and profitability.