Local peer effects and corporate investment
Yangming Bao and
Martin Goetz
No 220, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE
Abstract:
We examine how a firms' investment behavior affects the investment of a neighboring firm. Economic theory yields ambiguous predictions regarding the direction of firm peer effects and consistent with earlier work, we find that firms display similar investment behavior within an area using OLS analysis. Exploiting time-variation in the rise of U.S. states' corporate income taxes and utilizing heterogeneity in firms' exposure to increases in corporate income tax rates, we identify the causal impact of local firms' investments. Using this as an instrumental variable in a 2SLS estimation, we find that an increases in local firms' investment reduces the investment of a local peer firm. This effect is more pronounced if local competition among firms is stronger and supports theories that firm investments are strategic substitutes due to competition.
Keywords: Investments; Peer Effects; Agglomeration; Corporate Income Tax (search for similar items in EconPapers)
JEL-codes: G31 G38 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-cfn and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:220
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