Peer Effects in Financial Investment of Board-interlocked Firms: An Information Sharing Perspective.

This paper aims to investigate the peer effects in financial investment of board-interlocked firms from the information sharing perspective. Based on board interlock and financial information of A-share listed nonfinancial firms in China, we construct board interlocking networks where firms share at least one board member in common and conduct an empirical investigation into peer effects in financial investment of board interlocking firms. The results demonstrate that peer effects are noticeably found in nonfinancial firms even after ruling out endogenous concerns by applying peers' peers' characteristics as instrumental variables, and carrying out robustness tests and placebo tests. In addition, the main manifestation of these peer effects is that firms with inferior quality information, i.e., poor financial conditions, low market capitalization, and higher stock idiosyncratic volatility, tend to follow companies that are perceived as having superior quality information in the above-mentioned areas. Firms located in the core position of board interlocking network or with more assets are more likely to be influenced by peers, because they can obtain more high-quality information. Different from existing studies, this paper provides a board interlocking perspective to the study of peer effects, which offers a new explanation for the expansion of financial activities of firms in China. [ABSTRACT FROM AUTHOR]