Who Leads and Who Follows? The Cross-Border Peer Effect in Investment by Chinese and US Firms

We document a cross-border peer effect in corporate investment across two key economies, China and the US. Results show that investment by Chinese firms lags US peers without feedback in the other direction. This association is stronger for Chinese firms in manufacturing, with innovative US peers, or experiencing trade pressure, and is robust to diagnostic tests using trade conditions and business cycles. Furthermore, Chinese firms respond to domestic competition by learning from US peers. Information acquisition and managerial career concerns partly explain the peer effect. Our work illustrates how decision-makers in China’s rapidly-growing economy have learned from foreign peers