The Effect of Peer Information on Investment Decision

Abstract

Recent researches on many areas of economics and finance focus on peer effects. By testing the peer effect in investment field, I find that peer firms real operational decisions play an important role in determining own firms real investment decisions (e.g., Investment). Prior evidence that firms are affected by industry peers leaves an unaddressed question whether this peer effect makes a firms investment more effective. I show that highly sensitive firms that react more to peer firms are likely to underinvest or overinvest. In addition, I also find that accounting quality can play a moderating role in the sensitivity of mimicking action through the shareholders monitoring effect.