Transformations  in
Business & Economics

PEER EFFECTS OF OVER-INDEBTEDNESS AND CORPORATE PERFORMANCE: FROM THE PERSPECTIVE OF INSTITUTIONAL ENVIRONMENT¹²
Xin Gong, Jun Mu, Qihua Yin, Yuliang Zhao, Hao Cheng

ABSTRACT: The peer effects of over-indebtedness severely constrain the normal operation and development of corporations. The ways on how to reduce the negative impact of peer effects on corporations is an urgent issue in the current economic environment. At present, scholars have reached a consensus on the existence of the peer effects of over-indebtedness. However, studies on the relationship between over-indebtedness and corporate performance are inadequate. In order to address the above-mentioned gap, the impact of the peer effects of over-indebtedness on corporate performance and the effect mechanism of the institutional environment in this process were analysed by drawing on the Modigliani-Miller and institutional environment theories and using 2006-2022 data on listed companies in 30 countries and a panel fixed-effects model. The results show that the peer effects of over-indebtedness harm corporate performance and can reduce corporate solvency, profitability, and risk-taking. To some extent, a productive institutional environment can mediate the negative impact of the peer effects of over-indebtedness on corporate performance. The negative impact of the peer effects of over-indebtedness on corporate performance is more significant among larger-scale corporations that face stronger competition in less developed countries. Conclusions enrich and improve the relevant peer effect theories and provide a policy basis for government departments to prevent and resolve the negative impact of the peer effects of over-indebtedness.

KEYWORDS:  peer effects of over-indebtedness, performance, legal environment, government efficiency.

JEL classification:  L91, O18, R11.

¹²Acknowledgments:  This study was supported by Zhejiang Province Higher Vocational Education "14th Five-Year Plan" Second Batch of Teaching Reform Projects.(Innovation and Practice of Talent Cultivation Mode of Higher Vocational Accounting Major Facing New Quality Productivity, No.jg20240405).