Who Mimics Whom? Evidence from Corporate Sector

Abstract

Firms copy their colleagues during their own financial decisions. Firms copy colleagues because it serves various underlying motives. This study aims to establish that whether there is any financial motive of firms which forces them to copy their peers. To serve this objective, this study established two different set of peer groups on the basis of size (small and large firms) utilizing Propensity Score Matching (PSM) methodology. To find this financial motive, three measures of financial performance were taken such as Return on Equity (ROE), Return on Assets (ROA) and Stock Return (SR). The results of the study confirmed minimal differences across all three measures of financial performance indicating firms’ imitate peers to bring same financial performance to those of their peers. Other than using the study, specific considerations if selected can increase the total amount of research. As such, current research based on existing literature has established two peer groups that were smaller compared to larger firms. For a deeper and clearer understanding future researchers can expand the scope of research by including a peer group in terms of firm age, growth, financial problems and more. Future directions and strengths are also discussed. In addition to its usefulness there are few limitations of the study as well there is still more work needed to be done in this field, more literature is needed to be added in this area that how small firm can outperform if they follow every detail of large rival firms.