An Empirical Study of Peer Effects on Firms' Dividend and Stock Repurchase Policies

I examine peer effects on the firm's dividend and stock repurchase policies within the industry groups defined by the North American Industry Classification System and Standard Industry Classification. The causal effects are identified with instrumental variables "average peer firms' lagged idiosyncratic component of profit" and "average peer firms' lagged idiosyncratic component of stock returns". Among the probability and magnitude of the dividend and stock repurchase policies, the results indicate that peer effects are significant in a firm's payout decision makings. In addition, they rank high in a firm's payout decision makings in the long term (a year). In a quarter, however, the statistical significance and the marginal effects of the peer effects are smaller.