Abstract
Using a large sample of 17,747 firms from 44 countries, we find significant positive peer effects on corporate investment. Specifically, a firm increases its investments by 2% to 6% in response to a one standard deviation increase in peer firms' investments. Further analyses show significant within-country heterogeneity, as peer effects are salient for larger, mature, high-tangibility and high-market power firms with ample resources and latitude to respond to rival firms. In contrast, we find no significant cross-country heterogeneity in peer effects conditional on institutional quality, legal origin, and financial development, suggesting that peer effects similarly matter across countries. Our results further show that mimicking peer firms' investments positively affects shareholder value, with this effect being salient in good macroeconomic states. In summary, our study shows substantial industrial interdependence in corporate investments which might amplify positive and negative firm-specific shocks within and across industries and countries.
| Original language | English |
|---|---|
| Publisher | SSRN |
| Pages | 1-60 |
| Number of pages | 60 |
| Publication status | Published - 4 Feb 2022 |
Bibliographical note
The data that support the empirical findings of this study is available from Thomson Reuters Datastream. Restrictions may apply to the availability of this data, which was used under license. Data for measures of institutional development is available from the Morgan Stanley Capital International Market Framework (MSCI), The World Bank (World Bank) and International Monetary Fund (IMF)Keywords
- peer effect
- capital expenditure
- institutions
- legal origin
- financial development
- financial crisis
- mimicking
- shareholder value