Does Firm Investment Respond to Peers’ Investment?

We study whether, how, and why the investment of a firm depends on the investment of other firms in the same product market. Using an instrumental variable based on the presence of local knowledge externalities, we find a sizeable complementarity of investment among product market peers, holding across a large majority of sectors. Peer effects are stronger in concentrated markets, featuring more heterogeneous firms, and for smaller firms with less precise information. Our findings are consistent with a model in which managers are imperfectly informed about fundamentals and use peers’ investments as a source of information. Product market peer effects in investment could amplify shocks in production networks. This paper was accepted by Gustavo Manso, finance.

• 저널Management Science · 67(8) · 4703–4724
• 토픽Merger and Competition Analysis · Economics and Econometrics
• DOI10.1287/mnsc.2020.3695
• 저자Maria Cecilia Bustamante, Laurent Frésard