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The peer effect of corporate financial decisions around split share structure reform in China

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  • Wei He
  • Qian Wang

Abstract

We examine the peer effects in financial decisions of Chinese listed companies for the period of 1998–2016 as well as around Split Share Structure Reform (SSSR). Consistent with the information‐based theory of learning, Chinese firms do adjust their capital structure in response to the changes in their peers’ market leverage ratios. The industries that are more competitive, with more young firms, and high leverage volatility tend to exhibit stronger peer effects. Within industries, the firms with lower market share and profits, paying no dividends, and being financially constrained mimic their peers more strongly than their counterparts. The evidence around the SSSR reveals that firms tend to follow their industry peers and leaders more closely in making financial decisions after the reform. Finally, the mimicking behavior in financial decisions enhances firm value in the long run and this finding is more evident after the reform.

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  • Wei He & Qian Wang, 2020. "The peer effect of corporate financial decisions around split share structure reform in China," Review of Financial Economics, John Wiley & Sons, vol. 38(3), pages 474-493, July.
    • Handle: RePEc:wly:revfec:v:38:y:2020:i:3:p:474-493
    DOI: 10.1002/rfe.1088
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    4. Zhao, Lihong & Yuan, Huiai, 2024. "Digital transformation and the herd effect of corporate green investment," Finance Research Letters, Elsevier, vol. 63(C).

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