Competitive pressure from peers, firm sizes and firms' risk-taking behaviours: machine learning evidence

Abstract

Purpose

This study aims to investigate how firms of different sizes respond to competitive pressure from peers.

Design/methodology/approach

This study employs machine learning techniques to measure competitive pressure based on management discussion and analysis (MD&A) documents and then utilises the constructed pressure indicator to explore the relationship between competitive pressure and corporate risk-taking behaviours amongst firms of different sizes.

Findings

We find that firm sizes are positively associated with their risk-taking behaviours when firms respond to competitive pressure. Large firms are inclined to exhibit a high level of risk-taking behaviours, whereas small firms tend to make conservative decisions. Regional growth potential and institutional ownership moderate the relationships.

Originality/value

Utilising text mining techniques, this study constructs a novel quantitative indicator to measure competitive pressure perceived by focal firms and demonstrates the heterogeneous behaviour of firms of different sizes in response to competitive pressure from peers, advancing research on competitive market pressures.

Citation

Tian, J., Meng, X., Li, L., Cao, W. and Xue, R. (2024), "Competitive pressure from peers, firm sizes and firms' risk-taking behaviours: machine learning evidence", Journal of Accounting Literature, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JAL-11-2023-0202