Peer Effects on Corporate Cash Holdings: Evidence from Vietnam

This research examines corporate cash holdings in Vietnam, an emerging market, and finds reverse peer effects on them - that is, a firm’s level of cash holdings negatively relates to those of its peers. We also note the reverse peer effects are stronger for firms facing less competition and with low intangibility. Because the Vietnam market has noticeably lower competition and investment in innovation than in developed economics like the U.S., our evidence supports the role of competition and innovation investment in driving cash holdings’ peer effects and complements the literature that mostly focuses on developed economies. Our findings are consistent with the notion that some firms strategically accumulate cash to drive their competitors’ cash level lower when they are in less competitive industries or when they have lower innovation investments. Thus, the existing competition or innovation environment is crucial when modeling the cash holding behavior among industry peers. However, our tests on the preemptive motive for peer effects on cash holdings are inconclusive. Lastly, our results also support heterogeneity across countries in peer mimicking behavior and contributes to the cash holdings literature for the Vietnam market.