Do Peer Firms Affect Corporate Financial Policy?

  • Mark T. Leary
  • , Michael R. Roberts

    Research output: Contribution to journalArticlepeer-review

    686 Scopus citations

    Abstract

    We show that peer firms play an important role in determining corporate capital structures and financial policies. In large part, firms' financing decisions are responses to the financing decisions and, to a lesser extent, the characteristics of peer firms. These peer effects are more important for capital structure determination than most previously identified determinants. Furthermore, smaller, less successful firms are highly sensitive to their larger, more successful peers, but not vice versa. We also quantify the externalities generated by peer effects, which can amplify the impact of changes in exogenous determinants on leverage by over 70%.

    Original languageEnglish
    Pages (from-to)139-178
    Number of pages40
    JournalThe Journal of Finance
    Volume69
    Issue number1
    DOIs
    StatePublished - Feb 2014

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