Peer Group Effect in Firm Cash Holding Policy: Evidence from Korean Manufacturing Firms

Information about the activities of peer firms is indispensable for most corporate strategies. However, factors related to competitors have not been considered in most corporate financial research. This study uses data from Korean manufacturing firms to analyze empirically whether information on peer firms influences a firm's cash stockpiling decisions. Our results show that peer firms' cash ratio is a significant factor in the determination of company cash holding levels. To handle endogeneity issues, this study also proposes and attempts an alternative empirical method using a hybrid model utilizing both the mediation effect and instrumental variable.