In:
Management Science, Institute for Operations Research and the Management Sciences (INFORMS), Vol. 67, No. 8 ( 2021-08), p. 4703-4724
Abstract:
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.
Type of Medium:
Online Resource
ISSN:
0025-1909
,
1526-5501
DOI:
10.1287/mnsc.2020.3695
Language:
English
Publisher:
Institute for Operations Research and the Management Sciences (INFORMS)
Publication Date:
2021
detail.hit.zdb_id:
206345-1
detail.hit.zdb_id:
2023019-9
SSG:
3,2
