Network Effects in Corporate Financial Policies

65 Pages Posted: 15 Oct 2020 Last revised: 4 May 2021

See all articles by William Grieser

William Grieser

Texas Christian University

Charles J. Hadlock

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

James P. LeSage

Texas State University - McCoy College of Business Administration

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management

Date Written: May 3, 2021

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

JEL Classification: G31, G32, C40

Suggested Citation

Grieser, William and Hadlock, Charles J. and LeSage, James P. and Zekhnini, Morad, Network Effects in Corporate Financial Policies (May 3, 2021). Available at SSRN: https://ssrn.com/abstract=3659634 or http://dx.doi.org/10.2139/ssrn.3659634

William Grieser (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States

Charles J. Hadlock

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

315 Eppley Center
East Lansing, MI 48824-1121
United States
517-353-9330 (Phone)
517-432-1080 (Fax)

James P. LeSage

Texas State University - McCoy College of Business Administration ( email )

Finanace and Economics Department
601 University Drive
San Marcos, TX 78666
United States
512-245-0256 (Phone)
512-245-3089 (Fax)

HOME PAGE: http://www.spatial-econometrics.com

Morad Zekhnini

Michigan State University - The Eli Broad College of Business and The Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States

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