Does Firm Investment Respond to Peers’ Investment?

Management Science - Tập 67 Số 8 - Trang 4703-4724 - 2021
Maria Cecilia Bustamante1, Laurent Frésard2,1
1University of Maryland, College Park, Maryland, 20742
2University of Lugano, Swiss Finance Institute, Lugano 6900, Switzerland

Tóm tắt

We study whether, how, and why the investment of a firm depends on the investment of other firms in the same product market. Using an instrumental variable based on the presence of local knowledge externalities, we find a sizeable complementarity of investment among product market peers, holding across a large majority of sectors. Peer effects are stronger in concentrated markets, featuring more heterogeneous firms, and for smaller firms with less precise information. Our findings are consistent with a model in which managers are imperfectly informed about fundamentals and use peers’ investments as a source of information. Product market peer effects in investment could amplify shocks in production networks. This paper was accepted by Gustavo Manso, finance.

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Management Science

Tập 67 Số 8

4703-4724

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