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Precious Neighbors: The Value of Co-Locating with the Government*

Jörg R Stahl

Review of Finance, 2023, vol. 27, issue 4, 1269-1296

Abstract: In many countries, disproportionately many firms locate their headquarters in the capital city. Spatial proximity to a country’s leading politicians may be beneficial for a number of reasons. Since neither firms nor governments move randomly, the effects of firms’ co-locating with the government are normally hard to identify. I solve this problem by examining a unique event—the decision to relocate the German federal government from Bonn to Berlin in 1991. Following reunification, there was a free vote in the German parliament on the future location of the government. Berlin won by a narrow margin, an event that could not be anticipated even days before and that is free from confounding factors. Firms with corporate headquarters in Berlin experience abnormal equity returns of more than 3% following the relocation decision.

Keywords: Co-locating with government; Firm value effects; Headquarters location; German government relocation (search for similar items in EconPapers)
JEL-codes: B26 D72 G30 (search for similar items in EconPapers)
Date: 2023
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