While it is generally believed that pressure from peers induces employees to improve their efficiency and performance, little is known about whether employees' improved performance is detrimental to the interests of others. Based on a granular dataset at the individual-month level of investment advisors' and customers’ accounts from a large retail bank in China, we find that peer pressure, as measured by the performance of advisors relative to their colleagues in the previous month, can induce the advisors to sell more financial products, but can also exacerbate misselling, resulting in a significant increase in sales of poor-quality financial products ("high-risk-low-return" products). The causal link is identified with an exogenous change of peer size. The peer pressure effects are pronounced among poor performance advisors, and client complaints play a monitoring role in curbing misselling. By exploring the correspondence between advisors and clients, we find that misselling occurs mainly between female advisors and male clients, and between advisors who lack work experience and clients who lack investment experience.

Chinese companies have a distinctive feature by embedding Communist Party of China (CPC) into governance structure. In this study, we examine the impact of embedded CPC governance on disclosure quality in Chinese private firms. We find that embedded CPC governance improves disclosure quality. We also document that internal control mediates the relationship between embedded CPC governance and disclosure quality. Further analyses show that our results are pronounced for private firms with greater peer pressure, stronger industry competition, and poorer information environments. Overall, our findings aid our understanding of the role of embedded CPC in influencing disclosure practices in private enterprises.