Does peer influence improve firms’ innovative investment? Evidence from China

The peer contagion effects and firms' innovation: Evidence from China

“…Combined with the above analysis of relevant theories, the innovation level of a firm is affected by the innovation of other firms in the same industry, and a firm can also be integrated into the group of the same industry to influence the level of innovation of other individuals, and different firms in the same industry are influenced by the industry differently. Drawing on the existing literature, we define peer firms as all firms in the same industry without the subject firm itself and estimate peer firms' innovation by taking the natural logarithm of the average of the innovation levels of other firms in the industry in the same year except for the subject firm (Machokoto et al, 2021; Xiao et al, 2022). Marketization .…”

“…We select Chinese A‐share listed companies during the period 2011–2017 as research sample and classify the industries of listed companies according to the sector codes of the Industry Classification Guidelines for Listed Companies issued by China Securities and Regulatory Commission in 2012. Drawing on the practice of previous studies (Machokoto et al, 2021; Xiao et al, 2022), the following principles were followed to exclude the sample: (1) financial, insurance, and real estate listed companies; (2) ST‐type listed companies with abnormal conditions; (3) listed companies with missing financial data or not operating continuously; and (4) industries with a sample size of less than 10 companies in the same year. Finally, 8,497 company‐annual observations are obtained from China Patent Full Text Database and CSMAR database.…”

“…We further explore and analyze the peer contagion effects using these two types of innovations in the heterogeneity and robustness test section. (Machokoto et al, 2021;Xiao et al, 2022).…”

“…Second, under the framework of dynamic competition theory, the goal of firms is to maximize profits in competition, and inter‐firm competition is a long‐term dynamic interactive process with peer competitors (Baum & Korn, 1996), while imitative behavior toward peer firms is a dynamic response to resist risks and mitigate industry competition. Although the future benefits of innovation activities are uncertain, Chinese firms are nurtured by the traditional Doctrine of the Mean, and the conservative choice of following peer firms in implementing innovation activities can neutralize firms' fear of high risk of innovation and fierce competition when the average innovation level of peer firms with similar competitive environment and resource endowment is high (Xiao et al, 2022). From the perspective of attracting investors, although innovation achievements have not been transformed into economic value, they still send signals of future development trend to investors.…”

“…Machokoto et al (2021) exam whether peer firms influence corporate innovation in the US, and their results suggest that peer effects are a critical determinant of corporate innovation in addition to other factors. Xiao et al (2022) test peer effects of innovative investment and its interplay with contingent factors, including firms' market competitiveness, firm similarity, and political concern, and empirical results show that the peer effects matter with the innovation investment of others firms, which can be diffused among peers through industrial clusters. The existing studies overlook three issues: First, the existing studies focus on R&D investment, and because R&D activities are complex and high risk, the peer effects of R&D investment can only confirm the existence of industry convergence in firms' investment attitudes toward R&D activities, but high input does not mean that higher quantity and quality of R&D output can be obtained; second, the heterogeneity of peer contagion effects of innovation is less discussed.…”