Geographic spillover of dominant firms’ shocks

Sima Jannati

Journal of Banking & Finance, 2020, vol. 118, issue C

Abstract: This paper shows that productivity shocks to the 100 largest U.S. firms (by revenue) contain systematic information. Specifically, shocks to the top-100 firms predict future shocks to geographically close firms. Intra-sector trade links are an important economic channel for spillover effects. However, these spillovers are not restricted to firms’ trade links only. Knowledge externalities and state income tax payments of the top-100 firms are other economic channels through which shocks propagate. Market participants do not fully incorporate the information contained in shocks to the top-100 firms. Consequently, a portfolio analysis that exploits the slow diffusion of information generates an annual risk-adjusted return of 5.4%. Overall, the results show how productivity shocks to the few largest firms in the U.S. spillover to other firms and potentially aggregate to affect the national economy.

Keywords: Top-100 firms; Productivity shocks; Systematic information; Geographic spillover; Information diffusion (search for similar items in EconPapers)
JEL-codes: G02 G14 G24 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301102

DOI: 10.1016/j.jbankfin.2020.105844

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