The peer-firm effect on firm’s investment decisions |
| |
| Institution: | 1. Lally School of Management, Rensselaer Polytechnic Institute, Troy, NY 12180, USA;2. Gabelli School of Business, Fordham University, New York, NY 10023, USA;3. Bank of Finland, P.O.Box 160, FI 00101, Helsinki, Finland;1. MIT Sloan School of Management, United States\n;2. Boston College, United States\n;1. Lally School of Management, Rensselaer Polytechnic Institute, Troy, NY 12180, United States\n;2. Graduate School of Business, Fordham University, New York, NY 10023, United States\n;3. Ernst Young, Charlotte, NC 28202, United States\n;4. Pamplin College of Business, Virginia Tech, Blacksburg, VA 24061, United States\n;1. School of Economics and Finance, The University of Hong Kong, Hong Kong;2. School of Accounting and MBA School, Zhongnan University of Economics and Law, Wuhan, China |
| |
| Abstract: | This study investigates the effect of peer firms on firm investment strategies. We test the peer group effect hypothesis along differing levels of financially constrained firms as well as differing degrees of industry competition. Using idiosyncratic equity returns as the instrument variable, we use 2-stage least squares regression to identify the influence of peer firms’ investment decisions on a firm’s own investment policies. Our analyses empirically confirm that there is a peer group effect in making firm investment decisions. More financially constrained firms show greater dependency on peers’ investment decisions. Tests of peer sensitivity to the increase in industrial competition, however, displayed a U-shaped quadratic curve, which shows that firms have the lowest peer group effect in medium-competition markets. We claim that imitative behavior in investment is presumably weak in the mid-competition market because firms are yet to be distinguished in this market. |
| |
| Keywords: | Investment Financial constraint Risk averseness Peer firm effect U-shaped curve |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
