Is green contagious? -Local peer effects of corporate green investment

This study investigates the local peer effects of corporate green investment based on data from listed companies in China from 2010 to 2022. The results suggest that a firm’s green investment is sensitive to those of its headquartered neighboring firms. We further find that firms imitate local peers’ green investments for competitive and reputational reasons. Firms facing intense product market and external financing competition are more likely to emulate their peers to gain a competitive edge. Additionally, stronger reputational incentives drive firms to match the green investments of local firms. However, we do not observe evidence that agency problems drive the local peer effects. Further analyses reveal that imitation behavior in green investments gains positive feedback from stakeholders, reflected in higher revenues, more green institutional investment, and fewer environmental penalties, which ultimately enhance long-term firm value. Our study deepens stakeholders’ understanding of the drivers and benefits associated with corporate environmental governance.