Value relevance of peer-based benchmarking of discretionary expenses and business strategy

Research on value relevance of reported selling, general and administrative expenses (SG&A) generally employs historical SG&A as reference point for assessment. This practice tends to ignore the interpretational ambiguity that surrounds economics expenditure what it means future profitability firm value. Organizational theories stress importance peer-based benchmarking an aid assessment, especially when assessment uncertainty is high, argue similarity peers holds information by lending sensibility, appropriateness technical observed behaviour, thereby reducing uncertainty. Using a sample listed US firms, we investigate whether industry-specific benchmark conveys value-relevant information, asymmetry between firms investors. We find only with exceeding in previous period, associated higher financial performance reduces also both contemporaneous stock returns impound this uncertainty-reducing conveyed similarity. Results further show value-relevance mainly Defender-type business strategy from peer groups where strategies are more similar.