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Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion

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Author Info

  • Augustin Landier
  • Vinay B. Nair
  • Julie Wulf

Abstract

We investigate whether the geographic dispersion of a firm affects corporate decision making. Our findings suggest that social factors work alongside informational considerations to make geography important to corporate decisions. We show that (i) geographically dispersed firms are less employee friendly; (ii) dismissals of divisional employees are less common in divisions located closer to corporate headquarters; and (iii) firms appear to adopt a 'pecking order' and divest out-of-state entities before those in-state. To explain these findings, we consider both information and social factors. We find that firms are more likely to protect proximate employees in soft information industries (i.e., when information is difficult to transfer over long distances). However, employee protection holds only when the headquarters is located in a less populated county, suggesting a role for social factors. Additionally, stock markets respond favorably to divestitures of in-state divisions. The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 22 (2009)
Issue (Month): 3 (March)
Pages: 1119-1148

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Handle: RePEc:oup:rfinst:v:22:y:2009:i:3:p:1119-1148

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Citations

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Cited by:
  1. Xavier Giroud, 2010. "Soft Information and Investment: Evidence from Plant-Level Data," Working Papers 10-38r, Center for Economic Studies, U.S. Census Bureau, revised Nov 2010.
  2. Elyasiani, Elyas & Mester, Loretta J. & Pagano, Michael S., 2014. "Large capital infusions, investor reactions, and the return and risk-performance of financial institutions over the business cycle," Journal of Financial Stability, Elsevier, vol. 11(C), pages 62-81.
  3. Dennis Campbell & Srikant M. Datar & Tatiana Sandino, 2008. "Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry," Harvard Business School Working Papers 08-091, Harvard Business School.
  4. Cronqvist, Henrik & Heyman, Fredrik & Nilsson, Mattias & Svaleryd, Helena & Vlachos, Jonas, 2007. "Do Entrenched Managers Pay Their Workers More?," Working Paper Series 2007-7, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  5. Bae, Kee-Hong & Kang, Jun-Koo & Wang, Jin, 2011. "Employee treatment and firm leverage: A test of the stakeholder theory of capital structure," Journal of Financial Economics, Elsevier, vol. 100(1), pages 130-153, April.
  6. Knyazeva, Anzhela & Knyazeva, Diana, 2012. "Does being your bank’s neighbor matter?," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1194-1209.
  7. Cremers, M. & Huang, R. & Sautner, Z., 2009. "Understanding Internal Capital Markets and Corporate Policies," Discussion Paper 2009-47 S, Tilburg University, Center for Economic Research.
  8. Zur Shapira & Gary Dushnitsky, 2011. "Entrepreneurial Finance Meets Organizational Reality: Comparing Investment Practices And Performance Of Corporate And Independent Venture Capitalists," Discussion Paper Series dp589, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  9. Andres Almazan & Adolfo de Motta & Sheridan Titman & Vahap Uysal, 2007. "Financial Structure, Liquidity, and Firm Locations," NBER Working Papers 13660, National Bureau of Economic Research, Inc.
  10. Brisley, Neil & Bris, Arturo & Cabolis, Christos, 2011. "A theory of optimal expropriation, mergers and industry competition," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 955-965, April.
  11. Markus Glaser & Florencio Lopez-De-Silanes & Zacharias Sautner, 2013. "Opening the Black Box: Internal Capital Markets and Managerial Power," Journal of Finance, American Finance Association, vol. 68(4), pages 1577-1631, 08.
  12. repec:ste:nystbu:06-23 is not listed on IDEAS
  13. Sidney Turner & Richard Turner, 2011. "Capital cities: a special case in urban development," The Annals of Regional Science, Springer, vol. 46(1), pages 19-35, February.
  14. García, Diego & Norli, Øyvind, 2012. "Geographic dispersion and stock returns," Journal of Financial Economics, Elsevier, vol. 106(3), pages 547-565.
  15. Muravyev, Alexander & Berezinets, Irina & Ilina, Yulia, 2012. "Корпоративные Конфликты И Политика Фирм В Области Занятости И Заработной Платы
    [Corporate Governance Conflicts and Employment and
    ," MPRA Paper 40215, University Library of Munich, Germany.
  16. Brunello, Giorgio & Bassanini, Andrea & Caroli, Eve, 2014. "Not in my Community: Social Pressure and the Geography of Dismissals," Economics Papers from University Paris Dauphine 123456789/13579, Paris Dauphine University.

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