A Cross-Country Study of Peer Effects on Working Capital Management

This study examines how peer firms influence a firm's working capital management and how the effects vary by cross-country institutional factors. Using a large sample of 20,378 firms from 34 countries over the 2000–2019 period, we document significant positive peer effects in working capital management. We show that a firm increases working capital by approximately 7.2% in response to a one standard deviation increase in peer firms' working capital. We find that such peer effects are salient in countries with low governance quality and financial development. In addition, we find that mimicking working capital has implications on shareholder value