Relative Peer Quality and 10‐K Readability

ABSTRACT

This study examines the impact of the relative managerial quality of executives’ compensation peers on the readability of narrative disclosures in focal firms’ 10‐K reports. We use the fraction of peers with greater managerial ability scores than the reporting firm to measure the reporting firm's relative peer quality (RPQ). We find that RPQ is negatively associated with the readability of 10‐K reports, particularly when firms miss ambitious peer‐based performance targets. Mediation analyses show that this effect operates primarily through relative underperformance, consistent with a pressure effect in which executives obfuscate disclosures to deflect scrutiny from performance shortfalls. Moreover, the obfuscation strategy effectively delays market reaction around 10‐K filings. Overall, our findings highlight the unintended consequences of peer benchmarking in executive compensation contracts and offer new insights into how peer‐induced pressure shapes corporate disclosure.