Abstract

http://ssrn.com/abstract=1623379
 
 

References (43)



 
 

Citations (21)



 


 



Do Peer Firms Affect Corporate Financial Policy?


Mark T. Leary


Washington University in St. Louis - Olin Business School; National Bureau of Economic Research (NBER)

Michael R. Roberts


The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER)

July 30, 2010


Abstract:     
We show that corporate financial policies are highly interdependent; firms make financing decisions in large part by responding to the financing decisions of their peers, as opposed to changes in firm-specific characteristics. On average, a one standard deviation change in peer firms' leverage ratios is associated with an 11% change in own firm leverage ratios --- a marginal effect that is significantly larger than that of any other observable determinant and one that is driven by interdependencies among debt and equity issuance decisions. Consistent with information-based theories of learning and reputation, we find that smaller, more financially constrained firms with lower paid and less experienced CEOs are more likely to mimic their peers. Additionally, we quantify the externalities engendered by these peer effects, which can amplify the impact of changes in exogenous determinants on leverage by almost 70%.

Number of Pages in PDF File: 57

Keywords: Peer effects, Capital structure, Financing choice, Externalities, Industry

JEL Classification: G32

working papers series





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Date posted: June 12, 2010 ; Last revised: December 13, 2011

Suggested Citation

Leary , Mark T. and Roberts, Michael R., Do Peer Firms Affect Corporate Financial Policy? (July 30, 2010). Available at SSRN: http://ssrn.com/abstract=1623379 or http://dx.doi.org/10.2139/ssrn.1623379

Contact Information

Mark T. Leary (Contact Author)
Washington University in St. Louis - Olin Business School ( email )
One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Michael R. Roberts
The Wharton School - University of Pennsylvania; National Bureau of Economic Research (NBER) ( email )
3620 Locust Walk, #2320
Philadelphia, PA 19104-6365
United States
(215) 573-9780 (Phone)
HOME PAGE: http://finance.wharton.upenn.edu/~mrrobert/
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