Corporate Governance and Financial Peer Effects

Douglas (DJ) Fairhurst and Yoonsoo Nam

Financial Management, 2020, vol. 49, issue 1, 235-263

Abstract: Growing evidence suggests that managers select financial policies partially by mimicking policies of peer firms. We find that these peer effects in capital structure choice are unique to firms operating under weak external corporate governance. Cross‐sectional tests suggest that this finding is best explained by a quiet life hypothesis in which managers may be able to avoid the effort required to optimize financial policies and the scrutiny of market participants. Leverage ratios of mimicking firms display less sensitivity to a profitability shock. Finally, mimicking correlates to higher financing costs and lower future profitability, especially if it results in high leverage.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://doi.org/10.1111/fima.12240

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:bla:finmgt:v:49:y:2020:i:1:p:235-263

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0046-3892

Access Statistics for this article

Financial Management is currently edited by William G. Christie

More articles in Financial Management from Financial Management Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().