The peer effect of corporate financial decisions around split share structure reform in China

Abstract

We examine the peer effects in financial decisions of Chinese listed companies for the period of 1998–2016 as well as around Split Share Structure Reform (SSSR). Consistent with the information‐based theory of learning, Chinese firms do adjust their capital structure in response to the changes in their peers’ market leverage ratios. The industries that are more competitive, with more young firms, and high leverage volatility tend to exhibit stronger peer effects. Within industries, the firms with lower market share and profits, paying no dividends, and being financially constrained mimic their peers more strongly than their counterparts. The evidence around the SSSR reveals that firms tend to follow their industry peers and leaders more closely in making financial decisions after the reform. Finally, the mimicking behavior in financial decisions enhances firm value in the long run and this finding is more evident after the reform.

Do Peer Banks Affect Islamic Bank Financial Leverage Decisions?

“…That shows a positive effect of peer-bank behavior on the capital structure of US banks. The study of Zhong & Zhang (2018) Based on the literature, a more competitive industry, with more young companies and high leverage volatility, tends to show a stronger peer effect (He & Wang, 2019). Different financial behaviors of peer companies can help the company make better decisions, mainly if it performs in a competitive industry.…”

“…Therefore, for managers, peers' financial decisions information is a strategic instrument for decision-making in difficult circumstances (Zaighum & Karim, 2019). Companies follow their peers and mimic behavior when motivated to learn and build a reputation (Francis et al, 2016;He & Wang, 2019). Meanwhile, according to Leary & Roberts (2014), the peer effect on capital structure occurs when the actions or characteristics of the peer company explicitly enter the company's financing objective function.…”

“…Peer firm capital structure positively affects Chinese firms' capital structure decisions (Zhong & Zhang, 2018). The study by He & Wang (2019) indicates that the changes in peers' market leverage ratios positively impact Chinese firms' capital structures. Meanwhile, the research on crosscountry data shows that peer firm average leverage positively influences the firm's leverage decision (Francis et al, 2016).…”

“…Under intense competition in the output market, strategic capital structure decision is important. Therefore, companies must monitor competitors' capital structure decisions and react strategically (Francis et al, 2016;He & Wang, 2019;Zhong & Zhang, 2018).…”

Peer effect of enterprise innovation: Empirical evidence from China

“…Our third contribution is to expand the research on innovation by studying the impact of economic policy uncertainty on the peer effect of enterprise innovation. Although previous studies mostly discussed the influencing factors of enterprise innovation investment behavior from the perspective of internal factors or external macro environment ( Yang and Yang, 2010 ; Sung, 2019 ; He and Wang, 2020 ), these studies cannot determine whether the peer decision-making of innovation investment is different when enterprises are faced with different degrees of uncertainty in the economic policy environment. Therefore, we bring the macroeconomic environment into the analysis framework and further study the regulatory effect of economic policy uncertainty on the peer effect of enterprise innovation.…”