Peer Influence and Corporate Risk-taking

This paper documents that corporate risk-taking is responsive to peer influence. Firms take more risks if they encounter greater peer firms’ risk-taking. Furthermore, we find that firms with low-talented CEOs and poor-performance are more eager to learn from their peers, that better governance firms have the greater need to mimic their peers, and that firms in more competitive industries are more prone to follow their peers. Our conclusion is robust to alternative identification strategies such as network identification including endogenous selection of peers and traditional instrumental variable estimation.