Abstract
Equity markets play a pivotal role in the sustainability of developing countries, such as China. The literature on the detection of herding biases is confined to the aggregate level (firms, sector/industry and market). The present study adds to the behavioral finance literature by addressing the surprisingly unnoticed phenomena of the behavioral impact of herding bias on firm value (FV) at the firm level, using the sample of A-Shares listed firms at the Shanghai and Shenzhen Stock Exchanges (SSE and SZSE) under panel fixed effect specification. Initially, we detect the existence of investors and managers herding (IHR and MHR) biases at firm-level, and later, we examine their impact (distinct and interactive) upon the FV. The empirical results document the presence of IHR and MHR bias at market, sector and firm-level in both equity markets, which potentially drive the FV, while the impact is more pronounced during the extreme trading period. The findings are robust under different time intervals, and industry classification, therefore, offers useful policy implications to understand the behavioral dynamics of investors and managers.
Highlights
The stock market trading dilemma is the cumulative reflections of investors’ behavior [1]
Based on the literature and the questions stated above, this study adds to the existing literature in the following ways: Firstly, it hypothesizes the presence of herding bias in the Chinese equity markets at the market and industry/sector level, in line with [8,15,19,28], and later it extends the phenomena at the firm level, which is a unique addition to the behavioral finance literature
The study adds to the behavioral finance literature by addressing the surprisingly unnoticed phenomena of the behavioral impact of herding bias on firm value (FV) at the firm level, using the sample of 1,043 A-Shares listed firms at the SSE and SZSE under fixed effect specification
Summary
The stock market trading dilemma is the cumulative reflections of investors’ behavior [1]. Bo et al [22] witness the investment herding bias among the corporate board, directors, and CEOs of non-financial firms from 1999 to 2004, and the consequent positive and significant impact on the FV Another group of studies [23,24,25] report the mixed results of herding bias at the SSE and SZSE. Based on the literature and the questions stated above, this study adds to the existing literature in the following ways: Firstly, it hypothesizes the presence of herding bias in the Chinese equity markets at the market and industry/sector level, in line with [8,15,19,28], and later it extends the phenomena at the firm level, which is a unique addition to the behavioral finance literature.
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