Local peer effects and corporate investment

Yangming Bao and Martin Götz

No 34/2025, Discussion Papers from Deutsche Bundesbank

Abstract: We examine peer effects in corporate finance by assessing how a firm's investment influences its neighboring peer firms' investment. To uncover the exogenous com- ponent of investment, we exploit time variation in the increases in state corporate income taxes across the United States and utilize heterogeneity in local peer firms' exposure to these tax increases to construct an instrumental variable. We identify a positive and robust causal effect of local peer firms' investment decisions on firm investment. Distinguishing between physical and intangible investment, we find that peer firms' investment in physical (intangible) capital only influences firm investment in the same type of capital, particularly when that capital is central to operations. Further evidence indicates that learning from peers is an important factor, as peer effects are more pronounced for firms with stronger learning motives.

Keywords: Corporate Investment; Peer Firm Effects; Corporate Income Tax; Agglomeration (search for similar items in EconPapers)
JEL-codes: G0 G31 G38 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/334531/1/1947880152.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:334531

Access Statistics for this paper

More papers in Discussion Papers from Deutsche Bundesbank Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().