Peer effects in R&D investment policy: Evidence from China

International Journal of Finance and Economics, 2020, pp. 1-18

Posted: 30 Sep 2020

See all articles by Zhen Peng

Zhen Peng

Guangdong University of Technology - School of Management

Yujun Lian

Sun Yat-sen University

Joseph Ato Forson

University of Education, Winneba

Date Written: August 10, 2020

Abstract

Using a typical linear model on a sample of listed firms in China over a period of 10 years (2006–2016), this study empirically attempts proving how peer effects influence corporate research and development (R&D) investment decision. The study goes further to demonstrate that peer effects play a significant and critical role in determining corporate R&D investment policies, and by extension the more important determinant than most traditional firm-specific factors. After dealing with endogeneity bias and conducting further robustness checks, the above conclusions were valid in this study. It has been theorized in contemporary research that both information and market competition are the main channels through which one can best appreciate peer effects and that firms with weak information acquisition ability and in highly uncertain or competitive environment are more likely to be affected by peer groups. We also find evidence that a firm's R&D investment status relative to its peer firms will affect its R&D investment decision. Moreover, the direction of peer effects follows the law of imitation. Thus, firms are more likely to imitate those peers who share similar characteristics. Yet, leading firms and state-owned enterprises (SOEs) are exceptionally different as their R&D decisions are sensitive to both peer-followers and non-SOEs respectively.

Keywords: Competition, Imitation, Industry Peers, Information, Peer Effects, R&D Investment

JEL Classification: G10, G31, L00, L60

Suggested Citation

Peng, Zhen and Lian, Yujun and Forson, Joseph Ato, Peer effects in R&D investment policy: Evidence from China (August 10, 2020). International Journal of Finance and Economics, 2020, pp. 1-18, Available at SSRN: https://ssrn.com/abstract=3674342

Zhen Peng (Contact Author)

Guangdong University of Technology - School of Management ( email )

Guangzhou, 510520
China

Yujun Lian

Sun Yat-sen University ( email )

135 Xin Gang Xi Road
Guangzhou, Guangdong Province
China
86-20-84110648 (Phone)

HOME PAGE: http://www.lingnan.net/intranet/teachinfo/dispuser.asp?name=lianyj

Joseph Ato Forson

University of Education, Winneba ( email )

P.O. Box 25
Winneba, Central Region +233
Ghana

HOME PAGE: http://www.uew.edu.gh

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