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Peer effects and the mechanisms in corporate capital structure: evidence from Chinese listed firms

Author

Listed:
  • Jiali Liu

    (Center for China Public Sector Economy Research of KRI, Jilin University, China ; School of Economics, Jilin University, China)

  • Xinran Xie

    (School of Economics, Jilin University, China)

  • Yu Duan

    (School of Business and Management, Jilin University, China)

  • Liang Tang

    (Business School, Northeast Normal University, China)

Abstract

Research background: Peer effects, in which individuals learn and imitate their peers’ behaviors, have been widely recognized in different contexts. Particularly, with increasingly fierce competition, firms can no longer make financial decisions in isolation when facing terrible external operational environments. In contrast, observing peers’ actions in corporate policies can help reveal intentions regarding what peers are doing, which is vital for policymakers and financial managers. Studies on the existence of capital structure peer effects in the Chinese context have been conducted, but the mechanisms of peer effects are still ambiguous at present. Purpose of the article: This study aims to examine peer effects in capital structure and discover the mechanisms in the Chinese context. Understanding the mechanisms behind peer effects can help scholars and policymakers obtain more insights into the working mechanisms of peer effects. Furthermore, how the industry- and firm-specific characteristics affect peer effects and the selection of mechanisms should be analyzed. Methods: Using the fixed effects model (industry effect and year effect) and propensity score matching (PSM), as well as market leverage and heterogeneous stock shocks, we investigate peer effects, the mechanisms, and the effects of specific factors from industries and firms based on the sample of Chinese non-financial A-share listed firms on the Shanghai and Shenzhen stock markets from 2014 to 2021. Findings & value added: Study results show that peer effects exist in the corporate capital structure in the Chinese capital markets. Unlike previous studies, this analysis captures three mechanisms: the industrial average, industrial leaders, and industrial-similar firms. The intensity of peer effects and selection of mechanisms are influenced by both industry-specific characteristics (the degree of industrial competition and financing constraints) and firm-specific characteristics (firm size and market share).

Suggested Citation

  • Jiali Liu & Xinran Xie & Yu Duan & Liang Tang, 2023. "Peer effects and the mechanisms in corporate capital structure: evidence from Chinese listed firms," Oeconomia Copernicana, Institute of Economic Research, vol. 14(1), pages 295-326, March.
    • Handle: RePEc:pes:ieroec:v:14:y:2023:i:1:p:295-326
    DOI: 10.24136/oc.2023.008
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    More about this item

    Keywords

    peer effects; capital structure; learning mechanisms; Chinese capital markets;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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