Geographical Vibrancy and Firm Performance

Alexei Ovtchinnikov and Michael Cooper (mike.cooper@utah.edu)

No 1090, HEC Research Papers Series from HEC Paris

Abstract: Recent work has shown that where a firm is located matters for such things as dividend and investment policy, governance, liquidity, equity and debt issuance, and risk exposure. These effects seem to exist, in part, because of managements' desire to minimize agency problems related to monitoring and relationship building that vary as a function of firm distance from agents. The authors expand the current location literature by showing that firm location characteristics, not just distance per se, are important. They develop a geographical-based vibrancy index using important location characteristics from the Urban Economics literature that measure local economic health. We show that the vibrancy index not only predicts firm policy variables such as investment and leverage, but also predicts firm performance and firm value. The local effects are strong, adding up to a 50% increase in explanatory power above industry effects. Our results indicate that the local vibrancy of a firm headquarters is an important determinant of firm policies and profitability.

Keywords: geography; firm location; vibrancy; firm characteristics; firm performance (search for similar items in EconPapers)
JEL-codes: G10 G11 G23 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2015-03-16
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-geo and nep-ure
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Working Paper: Geographical Vibrancy and Firm Performance (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1090

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