Local peers and firm misconduct: the role of sustainability and competition

Asad Ali Rind, Wajih Abbassi, Manel Allaya, Amira Hammouda

    Research output: Contribution to journalArticlepeer-review

    Abstract

    Prior research shows that firms’ geographical location is critical for financial decisions. However, it is still unclear whether firms mimic the unethical behavior of their local peers and whether firms’ corporate social responsibility (CSR) and product market competition mitigate such behavior. We examine a US sample of 23,605 observations and find that firms’ likelihood of misconduct is positively related to the average level of misconduct in the local metropolitan area. The analysis shows that firms with strong CSR do not mimic their local peers’ fraudulent behavior. However, firms operating in industries with greater competition imitate their local peers’ unethical behavior. The channel analysis reveals that fraudulent peer effects are only prevalent in small firms, young firms, and those with low institutional ownership, suggesting that information asymmetry and weak monitoring drive our findings. The results also suggest stakeholders should pay more attention to firms operating in areas where misconduct is widespread.
    Original languageEnglish
    Article number106000
    Number of pages16
    JournalEconomic Modelling
    Volume116
    Early online date23 Aug 2022
    DOIs
    Publication statusEarly online - 23 Aug 2022

    Keywords

    • peer effects
    • Corporate misbehavior
    • Corporate social responsibility
    • Sustainability
    • Competition

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