This study examines industry and geographic peer effects on tax avoidance as well as their mechanisms and economic consequences in an emerging market, China. Using an instrumental variable approach and after considering a variety of robustness tests, we document causal evidence that a firm’s degree of tax avoidance is positively affected by the average degree of tax avoidance of its peer firms in the same industry or province. Further analyses show that both industry and geographic peer effects are driven by the motives of information learning and market competition and depend on the degree of local tax enforcement and executive tax expertise. We also document preliminary evidence that both industry and geographic peer effects benefit firms by improving their investments, dividend payouts, and future performance.

Industry and geographic peer effects on corporate tax avoidance: Evidence from China

Peer Influence on Trade Credit

Using a large sample of 4,545 US firms over the period 1968–2018, we find robust and significant positive peer effects on corporate innovation. Consistent with the need to keep ahead or abreast of rivals, we document an increase in peer firms’ influence with product market competition. Our further analyses show interesting leader–follower interactions with firms following or adopting innovation policies of counterparts perceived or likely to have superior information. This finding supports the information-based motives of mimicking. More importantly, we show that adopting peers’ innovation policies is associated with improvements in long-term innovation outputs and product market performance. Our results suggest that peer effects are a critical determinant of corporate innovation in addition to other factors examined so far in the literature.

Do peer firms influence innovation

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CFO cultural background and stock price crash risk

This paper investigates whether peer firms affect trade credit policy. Using data on US listed firms for the period 1997–2015, we document strong evidence of peer influence on trade credit provision. This result remains significant after using alternative trade credit measures, different peer proxies, and addressing endogeneity concerns using an instrumental variable approach based on the stock price shocks of industry peers. Our cross-sectional analysis further shows that peer effects in trade receivables only exist among suppliers that face fierce product market competition, consistent with the notion that firms closely mimic their peers due to competitive pressure. There is, however, fixed, and weak evidence on the argument that peer mimicking is driven by learning and reputational motives. Overall, our study highlights the important role of peer firm behavior in shaping a firm’s trade credit policy.

Is There Mimicking Behavior in Firms’ Trade Credit Decisions?

Growing evidence suggests that managers select financial policies partially by mimicking policies of peer firms. We find that these peer effects in capital structure choice are unique to firms operating under weak external corporate governance. Cross‐sectional tests suggest that this finding is best explained by a quiet life hypothesis in which managers may be able to avoid the effort required to optimize financial policies and the scrutiny of market participants. Leverage ratios of mimicking firms display less sensitivity to a profitability shock. Finally, mimicking correlates to higher financing costs and lower future profitability, especially if it results in high leverage.

Corporate Governance and Financial Peer Effects

Do cultures influence abnormal market reactions before official sovereign debt rating downgrade announcements

Equity recycling is the practice of contemporaneously raising equity and paying out to shareholders. We document evidence of equity recycling in the Asia-Pacific region. Exploiting variation in factors across Asia-Pacific markets, we find stronger evidence of recycling when financial constraints are not binding. Specifically, equity recycling is more prevalent in markets with greater financial development and during non-crisis time periods. Also, the practice is most pronounced for firms unlikely to face internal financial constraints. We also find evidence that equity recycling in the Asia-Pacific region is consistent with shareholders' interests and not a result of market timing by managers.

The practice of and motivation for equity recycling: Evidence from the Asia-Pacific region

In this study, we examine the extent of dividend heaping in Australian firms between 1976 and 2015. Our findings show that 27.39% of dividends greater than or equal to 2.5-cents are heaped in 2.5-cent intervals, while 70.90% of dividends less than 2.5-cents are heaped in 0.25-cent intervals. We find that the heaping phenomenon decreases over time and average dividend size increases. We also show that when establishing the likelihood of dividend heaping, stock return volatility and firm size are consistent with the information uncertainty hypothesis. Dividend heaping also appears to be influenced by firm-level characteristics that are inconsistent with the hypothesis. For instance, the likelihood of heaping increases with dividend size and firm age.

Do corporate directors ‘heap’ dividends? Evidence on dividend rounding and information uncertainty in Australian firms:

The authors examine whether a cognitive bias influences dividend policy. They find that managers use a heaping heuristic when choosing the amount of their firm’s dividend. Heaping is a huma...

Yoonsoo Nam

Papers

Corporate Governance and Financial Peer Effects

Do cultures influence abnormal market reactions before official sovereign debt rating downgrade announcements

The practice of and motivation for equity recycling: Evidence from the Asia-Pacific region

Do corporate directors ‘heap’ dividends? Evidence on dividend rounding and information uncertainty in Australian firms:

Heaping on Dividends: The Role of Dividend Size and Information Uncertainty