Do Intra-industry Peer Effects Influence the Debt Financing Policy of Companies Listed in Thailand?
DOI:
https://doi.org/10.55164/ecbajournal.v16i2.268062Keywords:
Peer Effects, Intra-Industry, Debt Finance, Imitation, Thai Listed CompanyAbstract
Rational imitation of financial policies, namely peer effects, was documented to prevail among firms within an industry in both developed and top emerging economies. Lacking evidence from medium-sized emerging Asian countries, this study examined intra-industry peer effects, i.e., imitation, on debt financing at Thai listed companies. The sample consisting of the firms listed on the Stock Exchange of Thailand (SET) during the years 2001–2018 was incorporated to discover those effects. Numerous databases associated with the SET (e.g., SETSMART) and the firms’ websites were used to collect financial numbers. With 6,058 firm-year observations, unbalanced panel data was then analyzed by using the random-effects and fixed-effects ordinary least squares models as well as the two-stage least squares regression. The main findings show that a focal firm imitates the long-term debt financing of its industry peers. Using the instrument approach to address endogeneity, the key results are confirmed. Peers’ equity shock as the instrumental variable decreases their financing with debt, subsequently lowering debt levels at a focal firm. This mimicking was operated through peer action, not peer character, i.e., performance. In additional tests, severe market competition was found to strengthen the uniformity of decision-making on debt finance among industry peers. Meanwhile, the high cost of information embedded in innovation-driven businesses has not been found to both promote and reduce peer effects on debt finance. Including the extra control variables at firm-specific levels, the key results remain robust. This study highlights a vein of social learning theory and competition-based theory in discussing herding behaviors toward all member firms in a certain industry. The conclusions enrich the literature on peer effects on debt finance policy.
References
Abadi, F., Bany-Ariffin, A., Kokoszczynski, R., & Azman-Saini, W. (2016). The Impact of Banking Concentration on Firm Leverage in Emerging Markets. International Journal of Emerging Markets, 11(4), 550-568.
Aghamolla, C., & Thakor, R. T. (2022). IPO Peer Effects. Journal of Financial Economics, 144(1), 206–226.
Aldrich, H., (1979). Organizations and Environments. Englewood Cliffs, NJ.: Prentice-Hall.
Ali-Rind, A., Boubaker, S., & Jarjir, S. (2023). Peer Effects in Financial Economics: A Literature Survey. Research in International Business and Finance, 64, forthcoming.
Bandura, A. (1971). Social Learning Theory. General Learning Press.
Bikhchandani, S., Hirshleifer, D., & Welch, I. (1998). Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades. Journal of Economic Perspectives, 12(3), 151-170.
Bolton, P., & Scharfstein, D. (1990). A Theory of Predation based on Agency Problems in Financial Contracting. The American Economic Review, 80(1), 93-106.
Brendea, G., & Pop, F. (2019). Herding Behavior and Financing Decisions in Romania. Managerial Finance, 45(6), 716–725.
Camara, O. (2017). Industry Herd Behaviour in Financing Decision Making. Journal of Economics and Business, 94, 32–42.
Chen, S., & Ma, H. (2017). Peer Effects in Decision-making: Evidence from Corporate Investment. China Journal of Accounting Research, 10(2), 167-188.
Chen, Y., Chan, K., & Chang, Y. (2019). Peer Effects on Corporate Cash Holdings. International Review of Economics and Finance, 61, 213-227.
Chu, C., Su, X., Lin, Y., Omura, A., Li, B., & Cheung, A. (2022). Love Thy Neighbour: Evidence from Capital Structure Decisions. Accounting and Finance.
Conlisk, J. (1980). Costly Optimizers Versus Cheap Imitators. Journal of Economic Behavior and Organization, 1(3), 275-293.
Connelly, T. (2016). Investment Policy at Family Firms: Evidence from Thailand. Journal of Economics and Business, 83(1), 91-122.
Damodaran, A. (2010). Applied Corporate Finance (3rd ed.). John Wiley and Sons.
Devenow, A., & Welch, I. (1996). Rational Herding in Financial Economics. European Economic Review, 40(3–5), 603-615.
DiMaggio, P., & Powell, W. (1983). The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Sociological Review, 48(2), 147–160.
Dodgson, M. (1993). Organizational Learning: A Review of Some Literatures. Organization Studies, 14(3), 375–394.
Duong, H., Ngo, A., & McGowan, C. (2015). Industry Peer Effect and the Maturity Structure of Corporate Debt. Managerial Finance, 41(7), 714-733.
Fairhurst, D., & Nam, Y. (2020). Corporate Governance and Financial Peer Effects. Financial Management, 49(1), 235-263.
Francis, B., Hasan, I., & Kostova, G. (2016). When do Peers Matter?: A Cross-country Perspective. Journal of International Money and Finance, 69(1), 364-389.
Ghani, E., Hye, Q., Rehan, R., & Salahuddin, S. (2023). Examining Capital Structure Determinants for ASEAN Energy Firms. International Journal of Energy Economics and Policy, 13(3), 129–140.
Gleason, C., Jenkins, N., & Johnson, W. (2008). The Contagion Effects of Accounting Restatements. The Accounting Review, 83(1), 83–110.
Graham, J., & Harvey, C. (2001). The Theory and Practice of Corporate Finance: Evidence from the Field. Journal of Financial Economics, 60(2–3), 187-243.
Haron, R. (2018). Firm Level, Ownership Concentration, and Industry Level Determinants of Capital Structure in an Emerging Market: Indonesia Evidence. Asian Academy of Management Journal of Accounting and Finance, 14(1), 127-151.
Hawley, A. (1968). Human Ecology. In D. L. Sills (Ed.), International Encyclopedia of the Social Sciences. Crowell, Collier, and Macmillan.
He, W., & Wang, Q. (2020). The Peer Effect of Corporate Financial Decisions Around Split Share Structure Reform in China. Review of Financial Economics, 38(3), 474-493.
Hung, C., Naeem, S., & Wei, K. (2020). Peer Firms’ Credit Rating Changes and Corporate Financing. The European Journal of Finance, 26(1), 41-63.
Hyman, H. (1942). The Psychology of Status. Archives of Psychology, 38(269).
Im, H. (2019). Asymmetric Peer Effects in Capital Structure Dynamics. Economics Letters, 176(1), 17-22.
Inoguchi, M. (2014). The Impact of External Shocks on Stock Prices in the East Asian Domestic Banking Sector, Risk Management Post Financial Crisis: A Period of Monetary Easing. Contemporary Studies in Economic and Financial Analysis, 96, 97-151.
John, K., Knyazeva, A., & Knyazeva, D. (2011). Does Geography Matter?: Firm Location and Corporate Payout Policy. Journal of Financial Economics, 101(3), 533-551.
Kelchtermans, S., Neicu, D., & Teirlinck, P. (2020). The Role of Peer Effects in Firms’ Usage of R&D Tax Exemptions. Journal of Business Research, 108, 74-91.
Kothari, S., & Lester, R. (2012). The Role of Accounting in the Financial Crisis: Lessons for the Future. Accounting Horizons, 26(2), 335–351.
Krishnankutty, R., Bharti, T., & Mishra, N. (2022). Herding Behaviour and Capital Structure Decision in BSE Listed Indian Firms. International Journal of Managerial and Financial Accounting, 14(2), 118-137.
Leary, M., & Roberts, M. (2014). Do Peer Firms Affect Corporate Financial Policy? The Journal of Finance, 69(1), 139-178.
Liang, Q., Li, Q., Lu, M., & Shan, Y. (2021). Industry and Geographic Peer Effects on Corporate Tax Avoidance: Evidence from China. Pacific-Basin Finance Journal, 67.
Liao, Y., Sang, T., & Tsai, Y. (2022). Do Information Sources Matter in Corporate Tax Avoidance? The Roles of Peer Effects and Director Interlocks. Review of Quantitative Finance and Accounting, 59(1), 339–382.
Limpaphayom, P., & Connelly, J. (2004). Review of Corporate Governance in Asia: Corporate Governance in Thailand. Available at SSRN: http://dx.doi.org/10.2139/ssrn.965300
Liu, J., Xie, X., Yu , D., & Tang, L. (2023). Peer Effects and the Mechanisms in Corporate Capital Structure: Evidence from Chinese Listed Firms. Oeconomia Copernicana, 14(1), 295–326.
M’ng, J., Rahman, M., & Sannacy, S. (2017). The Determinants of Capital Structure: Evidence from Public Listed Companies in Malaysia, Singapore, and Thailand. Cogent Economics and Finance, 5(1), 1-34.
Maté-Sánchez-Val, M., López-Hernández, F., & Mur-Lacambra, J. (2017). How do Neighboring Peer Companies Influence SMEs’ Financial Behavior? Economic Modelling, 63(1), 104-114.
Patnam, M. (2011). Corporate Networks and Peer Effects in Firm Policies: Evidence from India. University of Cambridge Working Paper. http://www.econ.cam.ac.uk/conf/networks-docs/corporate_mpatnam.pdf.
Peng, H., Zhou, C., Sadowski, B., & Sun, T. (2021). Does an Imitation Strategy Promote Long-term Firm Growth in a Dynamic Environment? A Meta-analysis. Frontiers in Psychology, 12, 1-17.
Sacerdote, B. (2011). Peer Effects in Education: How Might They Work, How Big are They and How Much do We Know Thus Far? Handbook of the Economics of Education, 3, 249-277.
Swanpitak, T., Pan, X., & Suardi, S. (2020). Family Control and Cost of Debt: Evidence from Thailand. Pacific-basin Finance Journal, 62.
Thanatawee, Y. (2023). Institutional Ownership and Cost of Debt: Evidence from Thailand. Cogent Business & Management, 10(2), 1-13.
Vithessonthi, C. (2014). Financial Markets Development and Bank Risk: Experience from Thailand During 1990–2012. Journal of Multinational Financial Management, 27, 67-88.
Wu, J., Harrigan, K., Ang, S., & Wu, Z. (2019). The Impact of Imitation Strategy and R&D Resources on Incremental and Radical Innovation: Evidence from Chinese Manufacturing Firms. The Journal of Technology Transfer, 44(1), 210–230.
Xiao, R., Ma, C., Song, G., & Chang, H. (2022). Does Peer Influence Improve Firms’ Innovative Investment?: Evidence from China. Energy Reports, 8, 1143-1150.
Zhang, H., & Hu, B. (2017). The Effects of Organizational Isomorphism on Innovation Performance Through Knowledge Search in Industrial Cluster. Chinese Management Studies, 11(2), 209-229.
Zhao, M., Ming, B., Li, Y., & Shi, J. (2022). Peer Effects of Working Capital Management: Considering the Moderating Effect of Knowledge Flow. Frontiers in Psychology, 13, 1-12.
Zhong, T., & Zhang, T. (2018). Peer Effects in Capital Structure Decision of Chinese Firms-empirical Investigation based on Chinese a-share Listed Firms. Nankai Business Review International, 9(3), 289-315.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 Faculty of Economics and Business Administration, Thaksin University
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
