Industry and regional peer effects on company innovation

Abstract

Innovation is crucial for business development and economic growth. This study examines the significance of industry and regional peer effects on company innovation, the underlying motivations, and their economic consequences. We find industry and regional peer significantly affects company innovation. Instrumental variables method is used to confirm the robustness of the findings. We also find that rivalry-based imitation is the key driver of innovation among peers. Further analysis reveals that these peer effects enhance companies’ total factor productivity. The peer effects, driven by rivalry-based imitation, positively influence the focal companies. This study expands the scope of factors influencing company innovation and enriches understanding of peer effects.