Date of Award
Open Access Thesis
Moore School of Business
Gerald A. McDermott
The paper demonstrates that firms are more likely to follow their peers when they face economic policy uncertainty. Using a newly developed economic policy uncertainty index and the financial data from COMPUSTAT of US firms, I find evidence that economic policy uncertainty strengthens peer effects on investments. In this paper, I propose a reputation-based theory and information-based theory to support the findings. Peer effects are stronger for less successful firms and financial constrained firms during periods when economic policy uncertainty is notable. Accordingly, I use four standards (i.e. firm profitability, financially constrained status, growth rate and market to book ratio) to define followers and leaders. I document that follower firms respond to leader firms’ investment changes, while leader firms do not respond to follower firms’ investment changes. Finally, I show that the results are robust to alternative economic policy uncertainty measures (i.e. close presidential elections) and additional control variables (i.e. firm size and leverage).
Wang, J.(2018). Does Economic Policy Uncertainty Strengthen Peer Effects on Investments?. (Master's thesis). Retrieved from https://scholarcommons.sc.edu/etd/5043