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Love thy neighbour: Evidence from capital structure decisions

Author

Listed:
  • Chien Chi Chu
  • Xiu‐Fen Su
  • Yu‐En Lin
  • Akihiro Omura
  • Bin Li
  • Adrian Wai‐Kong Cheung

Abstract

We examine how the peer effects arising not only from the leading firm but also from a slightly better performing firm affect the capital structure decisions of a firm. There is a large body of literature documenting the importance of peer effects, but it is unclear whether managers pay close attention to activities of slightly better performers. This study uses both book‐ and market‐value based approaches to estimate the peer effect measures. Our analysis shows that: (1) our peer effect measures induce the convergence of the follower firms' capital structure towards better performing firms; and (2) the capital structure converges more towards a slightly better performer.

Suggested Citation

  • Chien Chi Chu & Xiu‐Fen Su & Yu‐En Lin & Akihiro Omura & Bin Li & Adrian Wai‐Kong Cheung, 2023. "Love thy neighbour: Evidence from capital structure decisions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 2907-2933, September.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:3:p:2907-2933
    DOI: 10.1111/acfi.12995
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