The Research On Peer Effects Of Excess Leverage Of Chinese Listed Companies

Capital structure is an important issue in corporate finance research.Modem theory of capital structure develops a series of hypotheses,explaining the formation of capital structure on the basis of agency costs,information asymmetry,and market efficiency.However,the existing theory does not take into consideration of the role for peer firm behaviors.Firms tend to raise leverage when their peers have higher leverage.This phenomenon is called peer effects.There are two reasons for the peer effects of capital structure.First,by regarding peer firms,leverage as an experimenter-provided anchor,a firm sets the experimenter-provided anchor as a starting value in the decision-making process of capital structure.Second,due to agency problems,managers maximize their own interests by imitating their peer firms to choose the capital structure strategy.The role for peer firm behaviors in shaping capital structure is a factor that should not be ignored.In recent years,with the expansion of total debt,Chinese firm debt is worth attention.Some firms have excess leverage since their real leverage is higher than the target leverage.Excess leverage is a form of capital structure,and to study firm excess leverage could better identify the deviation condition of firm debt.With respect to the causes of excess leverage,besides the factors of market conditions and the firm itself,peer firms can also shape the excess leverage behavior of a firm.Therefore,it is of great importance to study the peer effects of excess leverage of Chinese listed firms.Chapter 1 theoretically analyzes the peer effects of firm excess leverage.After summarizing current literatures on peer effects and firm excess leverage respectively,this paper gives definitions of the two concepts and examines the possibility of the peer effects of firm excess leverage.Furthermore,by adopting two simple game models,we find that the synchronicity of firm excess leverage is because of contexture effects as well as peer effects and the increase in the payoffs of firm imitating behaviors strengthens the peer effects of excess leverage thus affecting the firm financing strategies.Chapter 2 empirically analyzes the region peer effects of firm excess leverage.Empirical results show that the excess leverage of China's listed companies is different in different regions.From 2004 to 2014,the excess leverage index of China is declining as a whole,especially in the east and the central areas.After ruling out possible explanations involving firm and region specifications as well as sorting effects,we document the region peer effects of excess leverage of China's listed firms.Whether a firm has an excess leverage or not correlates positively with the proportion of excess leveraged firms in its located region,and a firm's excess leverage correlates positively with the excess leverage index of its located region.The mechanism of region peer effects of excess leverage is the imitating behaviors of non-leader firms,unconstrained firms and firms with lower degree centrality.Marketization process and executives' dual position in shareholders' firms have significant impacts on the region peer effects of excess leverage.Chapter 3 empirically analyzes the industry peer effects of firm excess leverage.Empirical results document the cluster of the excess leverage of China's listed companies in different industries.Firms with high levels of excess leverage are mainly gathered in industries such as construction,wholesale and retail,while firms with excess leverage are in industries of mining,real estate,health and social work.By measuring the excess leverage indexes of different industries,we find that the excess leverage index of the real estate industry shows an obvious declining trend,the excess leverage indexes of water conservancy,environment and public facilities management industries show a trend of shape U,and the excess leverage indexes of construction,wholesale and retail,leasing and business are still greater than zero.After ruling out possible explanations involving firm,region and industry specifications as well as sorting effects,we document the industry peer effects of excess leverage of China's listed firms.Whether a firm has an excess leverage or not correlates positively with the proportion of excess leveraged firms in its affiliated industry,and a firm's excess leverage correlates positively with the excess leverage index of its affiliated industry.The mechanism of industry peer effects of excess leverage is the imitating behaviors of lower excess leveraged firms,firms with CEOs who have financial background and firms with lower degree centrality.Industry structures(factor intensity and industry concentration)and executives' financial background in shareholders' firms both have significant impacts on the industry peer effects of excess leverage.Chapter 4 empirically analyzes the board network peer effects of firm excess leverage.After taking into consideration of firm specifications and eliminating the sample involving in the changed board sizes and board structures that may lead to reverse causality,empirical results document that whether a firm has an excess leverage or not correlates positively with the proportion of excess leveraged firms in its embed board network,and a firm's excess leverage correlates positively with the excess leverage index of its embed board network.The mechanism of board network peer effects of excess leverage is the imitating behaviors of unconstrained firms and firms with lower degree centrality.Executives' financial background and closeness centrality firm board network both have significant impacts on the board network peer effects of excess leverage.Chapter 5 analyzes the impacts of the peer effects of firm excess leverage on firm investment and financing activities as well as firm stock price volatility from three dimensional perspectives of region,industry and board network respectively,and explains the existence of the phenomenon by using anchoring effects and principal-agent theory.We measure the peer effects of firm excess leverage by running the regression equations of firm excess leverage and excess leverage indexes of region,industry and board network respectively and calculating the mean value of the R squares of the regressions in each dimension.The results show that,from the perspective of region,provinces with stronger peer effects of firm excess leverage are Shanghai,Hunan,Tibet and Heilongjiang,and provinces with weaker peer effects are Hebe,Hubei,Qinghai and Liaoning.From the perspective of industry,peer effects of firm excess leverage in the health and social work industry is the strongest and the leasing and business services is the weakest.The intensity of the peer effects in different dimensions from the strongest to the weakest is in the order of board network,industry and region.From the perspective of time-varying tendency,the peer effects in all dimensions declines from 2003 to 2012 and raises from 2012 to 2014,with the trend of region peer effects more closely correlated to industry peer effects.Through the fixed-effects model analysis,we find that the region peer effects have a significantly positive impact on firm excess leverage and stock price volatility,and a negative impact on firm excess investment and profitability;The industry peer effects significantly positively impact on firm profitability,stock price synchronization and stock price crash risk,while negatively on firm debt paying ability and stock price volatility;The board network peer effects significantly positively impact on firm stock price synchronization,while negatively on firm debt paying ability and profitability.The underlying reasons of the existence of peer effects of firm excess leverage are anchoring effects and principal-agent problem.Because of the anchoring effect,firms regard the excess leverage of peer firms as an experimenter-provided anchor.The psychological bias in the decision-making process guides firms to implicate excess leverage strategies in consideration of their peers.The holding ratio of the largest shareholder and executives'dual position in shareholders' finns intensify or relieve the principal-agent problem,thus moderating the impacts of the peer effects on firm investment and financing activities and firm stock price volatility.The possible innovations and contributions of this paper lie in the following aspects.Firstly,this paper analyzes the peer effects of capital structure on the perspectives of region and board network,which helps to enrich the research of peer effects of corporate finance.The excess leverage can identify the deviation condition of firm debt.This paper examines the peer effects of firm excess leverage,which aims at better understanding the clustering phenomenon where firm debt deviates from its target capital structure.Secondly,the paper studies how the peer effects of firm excess leverage influence firm investment and financing behaviors as well as firm stock price volatility,and analyses the irrational and rational factors lead to the phenomenon,providing a complete research framework for corporate peer effects.Thirdly,our findings provide regulators with useful insights for related policy-making.