Who Leads and Who Follows? The Cross-Border Peer Effect in Investment by Chinese and US Firms

Posted: 7 Apr 2021

See all articles by Warren Bailey

Warren Bailey

Cornell University; Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance

Xiaping Cao

SUN YAT-SEN UNIVERSITY

Zhenyi Yang

Sun Yat-sen University

Sili Zhou

Fudan University - Fanhai International School of Finance (FISF)

Date Written: March 18, 2021

Abstract

We document a cross-border peer effect in corporate investment across two key economies, China and the US. Results show that investment by Chinese firms lags US peers without feedback in the other direction. This association is stronger for Chinese firms in manufacturing, with innovative US peers, or experiencing trade pressure, and is robust to diagnostic tests using trade conditions and business cycles. Furthermore, Chinese firms respond to domestic competition by learning from US peers. Information acquisition and managerial career concerns partly explain the peer effect. Our work illustrates how decision-makers in China’s rapidly-growing economy have learned from foreign peers.

Keywords: Peer effect, US, China, investment, WTO

JEL Classification: G31, E22, D81, G32, F65

Suggested Citation

Bailey, Warren B. and Cao, Xiaping and Yang, Zhenyi and Zhou, Sili, Who Leads and Who Follows? The Cross-Border Peer Effect in Investment by Chinese and US Firms (March 18, 2021). Available at SSRN: https://ssrn.com/abstract=3807216

Warren B. Bailey (Contact Author)

Cornell University ( email )

S. C. Johnson Graduate School of Management
387 Sage Hall
Ithaca, NY 14853-6201
United States
607-255-4627 (Phone)
607-254-4590 (Fax)

HOME PAGE: http://courses.cit.cornell.edu/wbb1/

Fudan University - Fanhai International School of Finance and China Institute of Economics and Finance ( email )

China

Xiaping Cao

SUN YAT-SEN UNIVERSITY ( email )

135 Xingang Xi Road
Guangzhou, 510275
China
+862084111154 (Phone)

Zhenyi Yang

Sun Yat-sen University ( email )

No. 135 XinGang Road Wst
Haizhu District
Guangzhou, Guangdong 510275
China

Sili Zhou

Fudan University - Fanhai International School of Finance (FISF) ( email )

220 Handan Road
Shanghai, 200433
China

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