Abstract
This study examines the impact of institutional shareholders (ISH) and agency problems on firms' mimicking behavior in corporate payout policies. Using data from all companies listed on the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) between 1996 and 2020, we employ a two-stage least squares regression approach to address endogeneity bias. The study reveals non-linear, inverted U-shaped effects of ISH on firms' mimicking behavior. At low levels of institutional holdings, firms mimic to retain the ISH. However, beyond a certain level, the active role of institutional investors in firms' decision-making reduces firms' incentives to mimic their peers' payout policies, thereby supporting the monitoring hypothesis. Furthermore, the study finds more pronounced effects of peers amongst firms with higher agency costs, reflecting managers' efforts to alleviate mistrust between shareholders and themselves. In additional analysis, our results confirm the superior value and performance of mimicking firms compared to non-mimicking firms. This study provides valuable insights into the motives driving firms' mimicking behavior.
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Recommended Citation
Jain, Neeraj; Kashiramka, Smita; and Chaudhry, Neeru
(2026)
"Peer Effect on Payout Decisions: The Moderating Role of Institutional Shareholdings and Agency Problems,"
American Business Review: Vol. 29:
No.
1, Article 9.
DOI: 10.37625/abr.29.1.175-202
Available at:
https://digitalcommons.newhaven.edu/americanbusinessreview/vol29/iss1/9
DOI
10.37625/abr.29.1.175-202
