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Soft Information and Investment: Evidence from Plant-Level Data

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  • Xavier Giroud
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    Abstract

    A reduction in travel time between headquarters and plants makes it easier for headquarters to monitor plants and gather “soft” information--i.e., information that cannot be transmitted through non-personal means. Using a difference-in-differences methodology, I find that the introduction of new airline routes that reduce the travel time between headquarters and plants leads to an increase in plant-level investment of 8% to 9% and an increase in plants’ total factor productivity of 1.3% to 1.4%. Consistent with the notion that a reduction in travel time makes it easier for headquarters to monitor plants and gather soft information, I find that my results are stronger: i) for plants whose headquarters are more time constrained; ii) for plants operating in soft-information industries; iii) during the earlier years of my sample period, when alternative, non-personal, means of monitoring and transmitting information were less developed; iv) for plants where information uncertainty is likely to be greater and soft information is likely to be more valuable, such as smaller plants and peripheral plants operating in industries that are not the firm’s main industry.

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    File URL: ftp://ftp2.census.gov/ces/wp/2010/CES-WP-10-38R.pdf
    File Function: Revised version, 2010
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    File URL: ftp://ftp2.census.gov/ces/wp/2010/CES-WP-10-38.pdf
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    Bibliographic Info

    Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 10-38r.

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    Length: 58 pages
    Date of creation: Oct 2010
    Date of revision: Nov 2010
    Handle: RePEc:cen:wpaper:10-38r

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    1. Ackerberg, Daniel & Caves, Kevin & Frazer, Garth, 2006. "Structural identification of production functions," MPRA Paper 38349, University Library of Munich, Germany.
    2. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
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    6. Guy Michaels, 2006. "The effect of trade on the demand for skill - evidence from the interstate highway system," LSE Research Online Documents on Economics 19767, London School of Economics and Political Science, LSE Library.
    7. Sharpe, Steven A, 1990. " Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-87, September.
    8. Augustin Landier & Vinay B. Nair & Julie Wulf, 2009. "Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion," Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1119-1148, March.
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    Cited by:
    1. Geoffrey Tate & Liu Yang, 2013. "The Bright Side Of Corporate Diversification: Evidence From Internal Labor Markets," Working Papers 13-40, Center for Economic Studies, U.S. Census Bureau.

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