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Self-disclosed peer effects on corporate capital structure

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  • Ajirloo, Bahman Fathi
  • Switzer, Lorne N.

Abstract

We study a network of interconnected firms and examine the impact of the firm’s business relationships with peers, rivals, and customers on its capital structure. Peer effect models commonly define peers based on three- or four-digit Standard Industrial Classification (SIC) codes. This renders them susceptible to measurement error and identification problems. These issues are of consequence, since we show that: a) many firms change industry affiliations over time and b) over one-half of peers revealed by managers to shareholders in a given year reside in industries that differ from the firm’s static of historical SIC code. We find that peer effects on financial policy are robust when the firm’s revealed peer group consists of self-disclosed rivals that share at least one customer with the firm in a two-year time window.

Suggested Citation

  • Ajirloo, Bahman Fathi & Switzer, Lorne N., 2022. "Self-disclosed peer effects on corporate capital structure," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:intfin:v:78:y:2022:i:c:s1042443122000506
    DOI: 10.1016/j.intfin.2022.101562
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    Cited by:

    1. Xiaoxu Zhang & Xinyu Du, 2023. "Industry and Regional Peer Effects in Corporate Digital Transformation: The Moderating Effects of TMT Characteristics," Sustainability, MDPI, vol. 15(7), pages 1-22, March.

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    More about this item

    Keywords

    Capital structure; Peer effects; Revealed peer groups; Corporate networks; Rivalry; Market competition; Common customers;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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