Network Effects in Corporate Financial Policies
65 Pages Posted: 15 Oct 2020 Last revised: 4 May 2021
Date Written: May 3, 2021
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
JEL Classification: G31, G32, C40
Suggested Citation: Suggested Citation