Direct experience of a peer’s punishment might have a sobering effect above and beyond deterrence (information about punishments). We test this mechanism in China studying the reactions to listed state-owned enterprises’ (SOEs) punishments for fraudulent loan guarantees by firms in the same location or industry (peers) and non-peer firms, across SOEs and non-SOEs. After experiencing SOEs’ punishments, peer SOEs cut their loan guarantees by more than non-peer SOEs and peer non-SOEs, even if information is common to all firms. The reaction is stronger for peer SOEs whose CEOs have higher career concerns or face lower costs of cutting guarantees.

We explore whether Management Discussion and Analysis (MD&A) can provide incremental information to peers. Using Chinese stock market data, we find that positive peers' MD&A tone encourages firms to hold more cash, particularly for industries with fewer institutional investors' site visits. Moreover, this association is moderated by predation risk and decision-making environment. Specifically, this effect is more pronounced for firms which are market followers or financial constrained, and it is also stronger for firms operating under higher economic policy uncertainty or solely in domestic market. Overall, our findings enrich the information channels of peer effects in cash policy.

Using a large sample of over 5,000 start-ups across various industries and 524 media outlets in China between 2000 and 2016, we examine the effects of media coverage of start-ups on VC investment decisions and performance. To the best of our knowledge, for the first time in the finance literature, we have discovered that media coverage of start-ups significantly affects VC investment decisions and exit performance. Specifically, such coverage, especially positive coverage, significantly increases the probability and amount of VC investments in start-ups. It also significantly improves the exit performance of VC investments. The significant effects of media coverage of start-ups on VC investments are driven by market-oriented instead of state-controlled media. We further find that VC investments in a focal start-up are significantly influenced by the average media coverage of other start-ups in the same industry or the same city. Our results are robust to a battery of robustness tests. Our research contributes to the behavioral finance literature by showing that an increasingly prominent type of institutional investors, venture capitalists, just like individual investors, are also subject to limited attention. Our research also extends the research by You, Zhang and Zhang (2018) by revealing the heterogeneous effects of market-oriented and state-controlled media on VC investments. Last but not the least, we are the first to discover that peer start-ups’ media coverage matters for VC investments in the focal firms, thereby pushing the frontier of research on the roles of media in finance.

This study examines for evidence of peer effects in the trading decisions of individual investors from Mainland China, a country whose cultural and social structures are vastly different from those of Western countries. Cultural differences, as widely documented, play a significant role in social interactions and word-of-mouth behavior. In contrast to U.S. studies, we find robust evidence that the trading decisions of Chinese investors are influenced, via word-ofmouth, by those of their peers who maintain brokerage accounts at the same branch, but not by those whose accounts are maintained at another branch located in the same city.