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Does Regional Identity Guide Investments? Evidence from German license plates

Fabian Wahl and Thilo Rene Huning

No 18074, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper, we present novel data from the German-speaking area on 13,422 venture capital investments between 1999 and 2019, and document a novel and yet unexplained contributor to investors' home bias. We propose a new measure of regional identity based on a recent vehicle license plate liberalization in Germany, and leverage on a unique dataset of historical borders to examine how regional identity is formed. We use an instrumental strategy to establish a causal link between historical political instability, regional identity, and the home bias. Our results indicate that a common regional identity is highly relevant for investment decisions.

Keywords: Behavioral finance; Home bias; Venture capital; Start-ups; Culture; Instability (search for similar items in EconPapers)
JEL-codes: G11 G24 G41 N20 Z19 (search for similar items in EconPapers)
Date: 2023-04
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