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Network effects in corporate financial policies

William Grieser, Charles Hadlock, James LeSage and Morad Zekhnini

Journal of Financial Economics, 2022, vol. 144, issue 1, 247-272

Abstract: We present a spatial econometrics framework for estimating peer effects in capital structure. This approach exploits the heterogeneous and intransitive nature of peer networks to identify economically informative structural coefficients. In models of leverage levels, we detect significant peer-effect leverage coefficients that are on the order of 0.20, indicating a moderate but substantive level of strategic complementarity in capital structure decisions. We argue that prior estimates in the literature substantially overstate the magnitude of the underlying relation. Our evidence is robust to a wide variety of model modifications and supports the hypothesis that leverage is an important strategic choice variable.

Keywords: Capital structure; Peer effects; Networks; Spatial econometrics (search for similar items in EconPapers)
JEL-codes: C40 G31 G32 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jfineco.2021.05.060

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