Self-serving behavior in managers' discretionary information disclosure decisions

Research has shown that managers display self-serving behavior in a variety of discretionary information production decisions. We test whether such behavior is also manifest in discretionary information disclosure decisions — in particular, in the common stock return performance comparisons now required in corporate proxy statements. We find evidence that the industry and peer-company stock return benchmarks, and broader market indices, chosen by management for those comparisons are downward biased, thereby overstating relative reporting-firm performance. Cross-sectionally, the extent of the bias varies with key reporting-firm attributes, including firm performance and the character of firm ownership structure.