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The Power of Peers: How Peer Effects Drive R&D Investment in Chinese Firms

Author

Listed:
  • He Tong

    (Faculty of Business, Economics, and Accountancy, Universiti Malaysia Sabah, Kota Kinabalu 88400, Malaysia)

  • Saizal Pinjaman

    (Faculty of Business, Economics, and Accountancy, Universiti Malaysia Sabah, Kota Kinabalu 88400, Malaysia)

  • Debbra Toria Nipo

    (Faculty of Business, Economics, and Accountancy, Universiti Malaysia Sabah, Kota Kinabalu 88400, Malaysia)

Abstract

Innovation drives China’s high-quality economic development, with corporate R&D investment being key to innovation. Using data from Chinese A-share non-financial listed firms (2010–2022), this study defines peer firms using a four-dimensional dynamic matching method of “year-industry-ownership nature-size quantile” and empirically explores peer effects on corporate R&D, combining dynamic panel analysis, instrumental variable regression, and robustness tests. The findings reveal a significant positive peer effect in the R&D investment of Chinese firms, meaning the R&D investment level of peer firms exerts a positive influence on the R&D decisions of focal firms. This conclusion is supported by Social Learning Theory, Knowledge Spillover Theory, and Institutional Theory: focal firms reduce decision-making uncertainty by observing and imitating peers, lower the marginal cost of R&D through knowledge spillovers from peers, and align their R&D behaviors with peers to gain legitimacy. This effect remains robust after addressing endogeneity. The study expands peer effect theory’s application in emerging markets and innovates peer identification, offering references for firms’ R&D strategies and governments’ innovation policies.

Suggested Citation

  • He Tong & Saizal Pinjaman & Debbra Toria Nipo, 2025. "The Power of Peers: How Peer Effects Drive R&D Investment in Chinese Firms," Economies, MDPI, vol. 14(1), pages 1-19, December.
    • Handle: RePEc:gam:jecomi:v:14:y:2025:i:1:p:7-:d:1826367
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