Research On The Excess Leverage Peer Effect

Each country has implemented economic stimulus policies since the financial crisis broke out in 2008.These policies increasingly rise the overall social debt scale while stimulating the economic growth.The leverage ratio of non-financial enterprise sector has risen rapidly.As to whether the high debt ratio of an enterprise is reasonable or not,scholars suggest that it should be judged according to whether or not the actual debt ratio deviates from the target debt ratio.If the actual debt level of the enterprise exceeds the target debt level,it will make excess leverage.The existing research ignores an important factor in affecting the excess leverage: the behavior of peer firms.Under the multiplier effect of peer effect,the excess leverage level of the whole industry is increased,and the industry financial risk is further aggravated.When the industry financial risk is accumulated to a certain extent,it may induce systemic financial risk.Enterprises are in different institutional environments,and the institutional environment factor will also affect the financing decisions of enterprises,and then affect the excess leverage behavior of enterprises.The institutional factors,such as legal system and government efficiency,are the basic elements of corporate governance evolution and have an important impact on business decision-making.The institutional environment not only influence the financing mode and cost of enterprises through laws and regulations,but also affect the investment willingness of potential investors through incentive mechanism and guidance mechanism.With the improvement of the system,the protection of the system for creditors is strengthened,and the opportunistic behavior of enterprise borrowing is hindered to some extent.In areas with poor institutional environment,the financial situation of local governments is often poor.In order to develop local economy,increase local fiscal revenue,or create performance projects,local governments even take direct intervention in bank credit and other measures to help local enterprises obtain bank loans.Therefore,such enterprises are more likely to form excess leverage.Moreover,in the areas with poor institutional environment,the degree of marketization is low.Due to the uncertainty and information asymmetry of the operating environment,the financing decision-making of enterprises can not completely rely on market information.The enterprise management has a strong motivation to "learn" from peer enterprises,which forms the peer effect of excess leverage.Therefore,it is necessary to study the peer effect of excess leverage based on the institutional environment.The main conclusions of this paper are as follows:First,in studying the existence and imitation path of the excess leverage peer effect,we find that: Based on the research samples of 30 countries,there is peer effect at the industry level,that is to say,the excess leverage of the enterprise will be affected by the excess leverage behavior of the peer enterprise in the industry,and the influence of the excess leverage behavior of the peer enterprise is greater than that of the enterprise's own characteristics such as profitability,company scale and other factors;The peer effect imitation path of excess leverage is shown in two aspects: One is that industry followers significantly imitate the behavior of industry leaders over debt,while industry leaders are not sensitive to the excess leverage decisions of industry followers.The other is that the excess leverage peer effect of the industries with high competitive level and growth rate is relatively significant.In other words,the more intense the competition is,the higher the growth rate of the industry will be,the enterprise will the more likely to imitate the excess leverage decision of its peers.Second,in the study of institutional environment and corporate excess leverage peer effect,we find that: legal environment,government efficiency and other institutional environment can significantly reduce the peer effect of excess leverage;there is heterogeneity in the influence of peer effect of excess leverage caused by the institutional environment.The degree of excess leverage is higher when the enterprise scale is smaller.When the enterprise lives in a better national institutional environment,the institutional environment can significantly reduce the peer effect of excess leverage.However,when the enterprise scale is larger and the degree of excess leverage lower,and the national institutional environment the enterprise living in poorer,the above-mentioned influence is not significant;when the industrial competition of the enterprise is higher,the legal environment,government efficiency and other institutional environment can significantly reduce the peer effect of excess leverage.Third,In the analysis of the mediating mechanism of institutional environment on the peer effect of excess leverage,it is found that information asymmetry is significantly related to the peer effect of excess leverage,and the improvement of institutional environment can reduce the degree of information asymmetry;Information asymmetry is the intermediating variable of institutional environment affecting the peer effect of excess leverage.A good institutional environment can effectively reduce the information asymmetry,thus reducing the peer effect of excess leverage.Fourthly,in the research onthe effect of institutional environment in regulatingthe peer effect of excess leverage,we find that: the greater the peer effect of excess leverage is,the higher the rate of excessive investment will be,that is to say,the peer effect of excess leverage increases the excessive investment of enterprises;the peer effect of excess leverage will reduce the solvency,profitability and risk-taking level of enterprises,and the negative effect brought into the value of enterprises.Considering the role of institutional environment,the solvency,profitability and risk-taking level of enterprises in those countries with better government efficiency and legal environment are not weakened with the enhancement of Peer Effect of excess leverage,which indicates that a better institutional environment can alleviate the negative effect of excess leverage peer effect on enterprise value to a certain extent.The innovation of this paper lies in the following aspects:First,from the perspective of peer enterprise interaction,this paper studies the excess leverage of enterprises,and provides a new explanation for the growing phenomenon of excess leverage in the listed companies.In the past literature,the excess leverage of enterprises is mostly regarded as the result of independent decision-making,ignoring the mutual influence among peer enterprises.The role of peer enterprises in influencing the financial behavior of target enterprises is often ignored.This paper discusses the peer effect of corporate excess leverage from the perspective of peer enterprises,expanding the research perspective of corporate excess leverage,providing a new explanation for the growing phenomenon of excess leverage of Listed Companies in China,and enriching the research literature of corporate excess leverage.Secondly,we study the peer effect of excess leverage by combining the institutional environment where the enterprises are located.Previous studies on the peer effect mainly focus on the micro aspects of company scale,profitability,book value ratio,etc.,ignoring institutional environment factors.After confirming that the institutional environment can affect the peer effect of excess leverage,this paper further explores the intermediary mechanism of the institutional environment on the peer effect of excess leverage,and broadens the research on the macro influencing factors of the peer effect of excess leverageThirdly,it expands the research on the economic consequences of corporate decision-making peer effect.Previous studies focused more on the existence and influencing factors of peer effect,but lacked the discussion on the negative economic consequences of peer effect.Based on the perspective of institutional environment,this paper discusses the economic consequences of excess leverage peer effect from two aspects of excessive investment and business performance,and further explore the regulatory effect of institutional environment on it,and puts forward governance measures to alleviate the negative economic consequences of corporate excess leverage peer effect,providing theoretical and empirical support for the government and other administrative departments to formulate corresponding policies.