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Peer Effects on Corporate Cash Holdings

Peer Effects on Corporate Cash Holdings. NTUICF 2012 Taipei Discussant: Wei- Hsien Li. Summary. Sample: 2,855 firms from Compustat SIC 2000-3999 1980-2011 Document that cash ratio of the firm is related to the peer firms’ average cash holding

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Peer Effects on Corporate Cash Holdings

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  1. Peer Effects on Corporate Cash Holdings NTUICF 2012 Taipei Discussant: Wei-Hsien Li

  2. Summary • Sample: • 2,855 firms from Compustat • SIC 2000-3999 • 1980-2011 • Document that cash ratio of the firm is related to the peer firms’ average cash holding • Using the lagged idiosyncratic stock returns of peer firms as the instrumental variable • Mimicking is stronger (weaker) if the firm has higher R&D (Sales)

  3. What I like about this paper • Asking a very interesting question • A careful treatment on the potential endogeneity concern

  4. Major concerns • Why mimicking cash-holding? • Theoretic background • Benoit (maybe), Lieberman and Asaba(not directly related to cash) • Are firms mimicking cash-holding or mimicking some uses of cash-holding? • Current tests cannot differentiate the mimicking from alternative stories • IV procedure • Following Leary and Roberts (2012) • Same IV for leverage, cash-holding, and other corporate decisions?

  5. Suggestions • Among various corporate decisions which could be mimicked, why study cash-holding first? • The usage of cash • For distinguishing this paper fromLeary and Roberts (2012) • R&D (in the paper), identify the leader and follower • CAPX, dividend (in Leary and Roberts (2012)) • M&A announcement? • Does the followers in the merger wave save cash following the leader’s action?

  6. Suggestions • How the mimicking changes across time? • Uncertainty, growth opportunity, competition • Who is mimicking who? • Unsuccessful firms mimicking successful firms • Marginal value of cash • Propose an alternative IV procedure

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