Research On Peer Effect Of Stock Market And Firm Investment

It has been widely acknowledged that the stock market prices influence corporate investment strategy in academic, however there are few articles interesting in the informational role of channel of learning from peer stock prices in guiding firm financial decision. The western scholars have demonstrated academically and empirically that investment is also influenced by the stock prices of peer firms-the existence of Peer Effect. However, we lack the evidence of Peer Effect in the merging market. Given these facts, This paper uses a large, unbalanced panel of firms over the period from 2001 to 2014 period to empirically study the influence of the market valuation of peer firms on corporate investment decisions. As a new empirical tool to test informational role of stock market.however it is difficult to identify peer effects because of the special endogeneity result from reflection problem. So I employ the instrumental variable estimation and two factor analysis to settle the endogenous problem.The main results:1) The peer’s stock prices have a significant influence on firm investment owing to the learning channel.2) The information aggregated in peers’stock prices should be informative for the firms’manager. So the signal conveyed by its peer stock price becomes more informative, the manager’s beliefs are more influenced by its peer stock price and therefore, his investment decision is more sensitive to this price.3) The more central the position of CEO in the doubling network, his investment is less sensitive to peer stock price.The main innovations:1)This article attempts to mend "bivariate reflection " problems arising in the same group between the individuals by using the instrument GMM regression to reestimate the baseline model. Further more, using Two way analysis of variance to identify Peer Effect from the mimic actions.2)Try to offer a new research prospective to further study this Peer Effect. In this article, I refer to the idea that decision externality in the Social Network theory.