SpringerLink
Log in

Firm-level Strategic Competition and Peer Effects in Corporate Investment among Chinese Firms

  • Published:
Journal of Systems Science and Systems Engineering Aims and scope Submit manuscript

Abstract

This study investigates the influence of strategic competition on peer effects in corporate investment by using a sample of 28,522 observations of Chinese listed companies from 2008 to 2020. The study develops a linear-in means model and uses an instrumental variables approach, and uses the competitive strategy measure (CSM) and Lerner index as proxies of competitive strategies and competitive positions to capture the firm-level competition. The empirical results demonstrate that when firms compete as strategic substitutes and when firms are in higher competitive positions, the peer effects in corporate investment are significant and positive. In addition, in circumstances of high information asymmetry, firms competing as strategic substitutes and firms in high competitive positions rely more on information related to investment from peer firms. Moreover, industry policies and barriers do not significantly influence peer effects in investment. This study offers new empirical evidence regarding peer effects in corporate investment in China.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Data Availability

The datasets generated during and/or analysed during the current study are available from the corresponding author on reasonable request.

References

  • Akdoĝu E, MacKay P (2012). Product markets and corporate investment: Theory and evidence. Journal of Banking and Finance 36(2):439–453.

    Article  Google Scholar 

  • Amihud Y (2002). Illiquidity and stock returns: cross-section and time-series effects. Journal of Financial Markets 5(1):31–56.

    Article  Google Scholar 

  • Badertscher B, Shroff N, White H D (2013). Externalities of public firm presence: Evidence from private firms’ investment decisions. Journal of Financial Economics 109(3): 682–706.

    Article  Google Scholar 

  • Baum J A C, Li S X, Usher J M (2000). Making the next move: How experiential and vicarious learning shape the locations of chains’ acquisitions. Administrative Science Quarterly 45(4): 766–801.

    Article  Google Scholar 

  • Belderbos R, Olffen W V, Zou J (2011). Generic and specific social learning mechanisms in foreign entry location choice. Strategic Management Journal 32(12):1309–1330.

    Article  Google Scholar 

  • Besanko D, Dranove D, Shanley M, Schaefer S (2003). Economics of strategy. John Wiley & Sons. 3rd ed.

  • Bikhchandani S, Hirshleifer D, Welch I (1998). Learning from the behavior of others: Conformity, fads, and informational cascades. Journal of Economic Perspectives 12(3):151–170.

    Article  Google Scholar 

  • Brandow G E (1969). Market power and its sources in the food industry. American Journal of Agricultural Economics 51(1):1–12.

    Article  Google Scholar 

  • Bulow J I, Geanakoplos J D, Klemperer P D. (1985). Multimarket oligopoly: Strategic substitutes and complements. Journal of Political Economy 93(3):488–511.

    Article  Google Scholar 

  • Bustamante M C Frésard L (2021). Does firm investment respond to peers’ investment? Management Science 67(8):4703–4724.

    Article  Google Scholar 

  • Cai H, Liu Q (2009). Competition and corporate tax avoidance: Evidence from Chinese industrial firms. Economic Journal 119(537):764–795.

    Article  Google Scholar 

  • Cao D, Lorenzoni G, Walentin K (2019). Financial frictions, investment, and tobin’s q. Journal of Monetary Economics 103:105–122.

    Article  Google Scholar 

  • Chen M-J, Mille D (2012). Competitive dynamics: Themes, trends, and a prospective research platform. The Academy of Management Annals 6(1):1–76.

    Article  Google Scholar 

  • Chen S, Ma H (2017). Peer effects in decision-making: Evidence from corporate investment. China Journal of Accounting Research 10(2):167–188.

    Article  Google Scholar 

  • Chuang Y T, Dahlin K B, Thomson K, Lai Y C, Yang C-C (2015). Multimarket contact, strategic alliances, and firm performance. Journal of Management 44(4):1551–1572.

    Article  Google Scholar 

  • Cookson J A (2017). Leverage and strategic preemption: Lessons from entry plans and incumbent investments. Journal of Financial Economics 123(2):292–312.

    Article  Google Scholar 

  • Coughlan A T (1985). Competition and cooperation in marketing channel choice: Theory and application. Marketing Science 4(2):110–129.

    Article  Google Scholar 

  • Dai Z, Guo L (2020). Market competition and corporate performance: empirical evidence from China listed banks with financial monopoly aspect. Applied Economics 52(44):4822–4833.

    Article  Google Scholar 

  • Deephouse D L (1999). To be different, or to be the same? it’s a question (and theory) of strategic balance. Strategic Management Journal 20:147–166.

    Article  Google Scholar 

  • Duong H K, Ngo A D, McGowan C B (2015). Industry peer effect and the maturity structure of corporate debt. Journal of Accounting Research 41(7):714–733.

    Google Scholar 

  • Durnev A, Mangen C (2009). Corporate investments: Learning from restatements. Journal of Accounting Research 47(3):679–720.

    Article  Google Scholar 

  • Ellison G, Glaeser E L, Kerr W R (2010). What causes industry agglomeration? evidence from coagglomeration patterns. American Economic Review 100(3):1195–1213.

    Article  Google Scholar 

  • Elzinga K G, Mills D E (2011). The lerner index of monopoly power: Origins and uses. American Economic Review 101(3):558–564.

    Article  Google Scholar 

  • Fairhurst D, Nam Y (2020). Corporate governance and financial peer effects. Financial Management 49(1):235–263.

    Article  Google Scholar 

  • Ferraro G, Iovanella A (2015). Organizing collaboration in inter-organizational innovation networks, from orchestration to choreography. International Journal of Engineering Business Management 7(24):235–263.

    Google Scholar 

  • Foucault T, Frésard L (2014). Learning from peers’ stock prices and corporate investment. Journal of Financial Economics 111(3):554–577.

    Article  Google Scholar 

  • Fracassi, C. (2017). Corporate finance policies and social networks. Management Science 63(8):2420–2438.

    Article  Google Scholar 

  • Frésard L (2010). Financial strength and product market behaviour: The real effects of corporate cash holdings. Journal of Finance 65(3):1097–1122.

    Article  Google Scholar 

  • Fudenberg D, Jean T (1984). The fat-cat effect, the puppy-dog ploy, and the lean and hungry look. American Economic Review 74(2):361–366.

    Google Scholar 

  • Gaspar J, Massimo M (2006). Idiosyncratic volatility and product market competition. The Journal of Business, 79(6):3125–3152.

    Article  Google Scholar 

  • Gelman M, Khan Z, Shoham A, Tarba S Y (2021). Does local competition and firm market power affect investment adviser misconduct? Journal of Corporate Finance 66:101810.

    Article  Google Scholar 

  • Glaeser E L, Kolko J, Saiz A (2001). Consumer city. Journal of Economic Geography 1(1):27–50.

    Article  Google Scholar 

  • Gu L (2016). Product market competition, r&d investment, and stock returns. Journal of Financial Economics 119(2):441–455.

    Article  Google Scholar 

  • Haushalter G D (2010). Financing policy, basis risk, and corporate hedging: Evidence from oil and gas producers. The Journal of Finance 55(1):107–152.

    Article  Google Scholar 

  • He N, Jiang Z-Z, Wang J, Sun M, **e G (2021). Maintenance optimisation and coordination with fairness concerns for the service-oriented manufacturing supply chain. Enterprise Information Systems 15(5):694–724.

    Article  Google Scholar 

  • Huang Y, Sheng K, Sun W (2022). Influencing factors of manufacturing agglomeration in the bei**g-tian**hebei region based on enterprise big data. Journal of Geographical Sciences 32(10):2105–2128.

    Article  Google Scholar 

  • Im H J, Liu J, Park Y J (2021). Policy uncertainty and peer effects: Evidence from corporate investment in China. International Review of Financial Analysis 77:101834.

    Article  Google Scholar 

  • Jiang F, Kim K A, Nofsinger J R, Zhu B (2015). Product market competition and corporate investment: Evidence from China. Journal of Corporate Finance 35:196–210.

    Article  Google Scholar 

  • Jiang Z-Z, Feng G, Yi Z, Guo X (2022a). Service-oriented manufacturing: A literature review and future research directions. Frontiers of Engineering Management 9(1):71–18.

    Article  Google Scholar 

  • Jiang Z-Z, Feng G, Yi Z, Lu W (2022b). Raising funds through crowdfunding for a capital-constrained servicing manufacturer. Transportation Research Part E: Logistics and Transportation Review 164:102813.

    Article  Google Scholar 

  • Jiang Z-, He N, Qin X, Sun M, Wang P (2022c). Optimizing production and maintenance for the service-oriented manufacturing supply chain. Annals of Operations Research 316:33–58.

    Article  MathSciNet  MATH  Google Scholar 

  • ** H, Qian Y, Weingast B R (2006). Regional decentralization and fiscal incentives:Federalism, Chinese style. Journal of Public Economics 89(9):1719–1742.

    Google Scholar 

  • Le H N Q, Nguyen T V H, Schinckus C (2022). The role of strategic interactions in risk-taking behavior: A study from asset growth perspective. International Review of Financial Analysis 82:102127.

    Article  Google Scholar 

  • Leary M T, Roberts M R (2014). Do peer firms affect corporate financial policy? The Journal of Finance 69(1):139–178.

    Article  Google Scholar 

  • Lieberman M B, Asaba S (2006). Why do firms imitate each other?. Academy of management review 31(2):366–385.

    Article  Google Scholar 

  • Lobanova O, Barua A, Mishra S, Prakash A J (2019). Earnings informativeness in dual-class firms: An empirical investigation of the earnings quality and the information environment. Review of Accounting and Finance 18(3):399–431.

    Article  Google Scholar 

  • Lyandres E (2006). Capital structure and interaction among firms in output markets: Theory and evidence. The Journal of Business 79(5):2381–2421.

    Article  Google Scholar 

  • Machokoto M, Gyimah D, Ntim C G (2021). Do peer firms influence innovation? The British Accounting Review 53(5):100988.

    Article  Google Scholar 

  • Manski C F (1993). Identification of endogenous social effects: The reflection problem. The Review of Economic Studies 60(3):531–542.

    Article  MathSciNet  MATH  Google Scholar 

  • Mao J, Tang S, **ao Z, Zhi Q (2021). Industrial policy intensity, technological change, and productivity growth: Evidence from China. Research Policy 50(7):104287.

    Article  Google Scholar 

  • Miller D, Chen M-J (1996). The simplicity of competitive repertoires: An empirical analysis. Strategic management journal 17(6):419–439.

    Article  Google Scholar 

  • Mithas S, Tafti A, Mitchell W (2013). How a firm’s competitive environment and digital strategic posture influence digital business strategy. MIS quarterly 37(2):511–536.

    Article  Google Scholar 

  • Moretti E (2004). Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data. Journal of Econometrics 121(1):175–212.

    Article  MathSciNet  MATH  Google Scholar 

  • Nikolov B, Whited T M (2014). Agency conflicts and cash: Estimates from a dynamic model. Journal of Finance 69(5):1883–1921.

    Article  Google Scholar 

  • Park K, Yang I, Yang T (2017). The peer-firm effect on firm’s investment decisions. The North American Journal of Economics and Finance 40:178–199.

    Article  Google Scholar 

  • Peng Z, Lian Y, Forson J A (2021). Peer effects in r&d investment policy: Evidence from China. International Journal of Finance & Economics 26(3):4516–4533.

    Article  Google Scholar 

  • Peress J (2010). Product market competition, insider trading, and stock market efficiency. The Journal of Finance 65(1):1–43.

    Article  MathSciNet  Google Scholar 

  • Povel P, Raith M (2004). Financial constraints and product market competition: ex ante vs. ex post incentives. International Journal of Industrial Organization 22(7):917–949.

    Article  Google Scholar 

  • Richardson S (2006). Over-investment of free cash flow. Review of accounting studies 11(2):159–189.

    Article  Google Scholar 

  • Semadeni M, Anderson B S (2010). The follower’s dilemma: Innovation and imitation in the professional services industry. Academy of Management Journal 53(5):1175–1193.

    Article  Google Scholar 

  • Shao Y, Hernández R, Liu P (2015). Government intervention and corporate policies: Evidence from China. Journal of Business Research 68(6):1205–1215.

    Article  Google Scholar 

  • Stock J H, Yogo M (2005). Testing for weak instruments in linear iv regression. Nber Technical Working Papers 14(1):80–108.

    MathSciNet  MATH  Google Scholar 

  • Sundaram A K, John T A, John K (1996). An empirical analysis of strategic competition and firm values the case of r&d competition. Journal of financial economics 40(3):459–486.

    Article  Google Scholar 

  • Valta P (2012). Competition and the cost of debt. Journal of Financial Economics 105(3):661–682.

    Article  Google Scholar 

  • Wu Y, Zhu X, Groenewold N (2019). The determinants and effectiveness of industrial policy in China: A study based on five-year plans. China Economic Review 53:225–242.

    Article  Google Scholar 

  • Yuan Z, Hou L, Zhou Z, Sun Y (2022). The impact of accounting information quality on corporate labor investment efficiency: Evidence from China. Journal of Systems Science and Systems Engineering 31(5):594–618.

    Article  Google Scholar 

  • Zhang M, **e, L, Xu H (2016). Corporate philanthropy and stock price crash risk: Evidence from China. Journal of Business Ethics 139(3):595–617.

    Article  Google Scholar 

  • Zhang S, Gregoriou A (2020). Post earnings announcement drift, liquidity and zero leverage firms: Evidence from the uk stock market. Journal of Business Research 116:13–26.

    Article  Google Scholar 

  • Zhu Q, Che J, Li Y, Zuo R (2022). A new prediction nn framework design for individual stock based on the industry environment. Data Science and Management.

Download references

Acknowledgments

This work was supported by the National Natural Science Foundation of China No. 72202030, and China Postdoctoral Science Foundation No. 2022M710630. Also, the authors sincerely thank the referees for their much practical help to improve the quality of this paper.

Author information

Authors and Affiliations

  1. School of Business Administration, Northeastern University, Shenyang, Liaoning, 110000, China

    Jianing Li

  2. Center for Quantitative Economics, Jilin University, Changchun, Jilin, 130015, China

    Yu-En Lin

Authors
  1. Jianing Li
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Yu-En Lin
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Yu-En Lin.

Additional information

Jianing Li is a postdoctoral fellow in School of Business Administration at Northeastern University, China. She received her Ph.D from Northeastern University in 2020. Her research interests include corporate investment and corporate governance.

Yu-En Lin is an associate professor in Center for Quantitative Economics at Jilin University, China. He received his Ph.D from National Dong Hwa University in 2010. His research interests include corporate governance, corporate social responsibility, behavioral finance and asset pricing. His work has been published in International Review of Financial Analysis, Emerging Markets Review, Financial Innovation, Accounting and Finance, Journal of Contemporary Accounting and Finance, etc.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Li, J., Lin, YE. Firm-level Strategic Competition and Peer Effects in Corporate Investment among Chinese Firms. J. Syst. Sci. Syst. Eng. 31, 753–774 (2022). https://doi.org/10.1007/s11518-022-5547-3

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11518-022-5547-3

Keywords

Search

Navigation