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Peer Effect on Payout Decisions: The Moderating Role of Institutional Shareholdings and Agency Problems

Author

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  • Neeraj Jain

    (Great Lakes Institute of Management, Chennai, Tamil Nadu, India)

  • Smita Kashiramka

    (Indian Institute of Technology, Delhi, Delhi, India)

  • Neeru Chaudhry

    (Indian Institute of Technology, Delhi, Delhi, India)

Abstract

This study examines the impact of institutional shareholders (ISH) and agency problems on firms' mimicking behavior in corporate payout policies. Using data from all companies listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) between 1996 and 2020, we employ a two-stage least squares regression approach to address endogeneity bias. The study reveals non-linear, inverted U-shaped effects of ISH on firms' mimicking behavior. At low levels of institutional holdings, firms mimic to retain the ISH. However, beyond a certain level, the active role of institutional investors in firms' decision-making reduces firms' incentives to mimic their peers' payout policies, thereby supporting the monitoring hypothesis. Furthermore, the study finds more pronounced effects of peers amongst firms with higher agency costs, reflecting managers' efforts to alleviate mistrust between shareholders and themselves. In additional analysis, our results confirm the superior value and performance of mimicking firms compared to non-mimicking firms. This study provides valuable insights into the motives driving firms' mimicking behavior.

Suggested Citation

  • Neeraj Jain & Smita Kashiramka & Neeru Chaudhry, 2026. "Peer Effect on Payout Decisions: The Moderating Role of Institutional Shareholdings and Agency Problems," American Business Review, Pompea College of Business, University of New Haven, vol. 29(1), pages 175-202, May.
    • Handle: RePEc:ris:ambsrv:022662
    DOI: 10.37625/abr.29.1.175-202
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    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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