IDEAS home Printed from https://ideas.repec.org/a/oup/revfin/v27y2023i4p1269-1296..html
   My bibliography  Save this article

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

Author

Listed:
  • Jörg R Stahl

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.

Suggested Citation

  • Jörg R Stahl, 2023. "Precious Neighbors: The Value of Co-Locating with the Government," Review of Finance, European Finance Association, vol. 27(4), pages 1269-1296.
    • Handle: RePEc:oup:revfin:v:27:y:2023:i:4:p:1269-1296.
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1093/rof/rfac063
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Gabriel M. Ahlfeldt & Stephen J. Redding & Daniel M. Sturm & Nikolaus Wolf, 2015. "The Economics of Density: Evidence From the Berlin Wall," Econometrica, Econometric Society, vol. 83, pages 2127-2189, November.
    2. Gennaro Bernile & Alok Kumar & Johan Sulaeman, 2015. "Home away from Home: Geography of Information and Local Investors," The Review of Financial Studies, Society for Financial Studies, vol. 28(7), pages 2009-2049.
    3. Germà Bel & Xavier Fageda, 2008. "Getting there fast: globalization, intercontinental flights and location of headquarters," Journal of Economic Geography, Oxford University Press, vol. 8(4), pages 471-495, July.
    4. Pat Akey, 2015. "Valuing Changes in Political Networks: Evidence from Campaign Contributions to Close Congressional Elections," The Review of Financial Studies, Society for Financial Studies, vol. 28(11), pages 3188-3223.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stephan Heblich & Stephen J Redding & Daniel M Sturm, 2020. "The Making of the Modern Metropolis: Evidence from London," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(4), pages 2059-2133.
    2. Jennie Bai & Massimo Massa, 2021. "Is Human-Interaction-based Information Substitutable? Evidence from Lockdown," NBER Working Papers 29513, National Bureau of Economic Research, Inc.
    3. Germa Bel & Xavier Fageda, 2009. "Preventing competition because of 'solidarity': rhetoric and reality of airport investments in Spain," Applied Economics, Taylor & Francis Journals, vol. 41(22), pages 2853-2865.
    4. Ferdinando Monte & Stephen J. Redding & Esteban Rossi-Hansberg, 2018. "Commuting, Migration, and Local Employment Elasticities," American Economic Review, American Economic Association, vol. 108(12), pages 3855-3890, December.
    5. Joan Monras, 2020. "Immigration and Wage Dynamics: Evidence from the Mexican Peso Crisis," Journal of Political Economy, University of Chicago Press, vol. 128(8), pages 3017-3089.
    6. Philipp vom Berge & Achim Schmillen, 2023. "Effects of mass layoffs on local employment—evidence from geo-referenced data," Journal of International Economic Law, Oxford University Press, vol. 23(3), pages 509-539.
    7. Lorenzo Caliendo & Luca David Opromolla & Fernando Parro & Alessandro Sforza, 2021. "Goods and Factor Market Integration: A Quantitative Assessment of the EU Enlargement," Journal of Political Economy, University of Chicago Press, vol. 129(12), pages 3491-3545.
    8. Morgan Ubeda, 2020. "Local Amenities, Commuting Costs and Income Disparities Within Cities," Working Papers halshs-03082448, HAL.
    9. Head, Keith & Mayer, Thierry, 2014. "Gravity Equations: Workhorse,Toolkit, and Cookbook," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 131-195, Elsevier.
    10. Pérez, Jorge & Vial, Felipe & Zárate, Román, 2022. "Urban Transit Infrastructure: Spatial Mismatch and Labor Market Power," Research Department working papers 1992, CAF Development Bank Of Latinamerica.
    11. Nathaniel Baum-Snow & Daniel Hartley & Kwan Ok Lee, 2019. "The Long-Run Effects of Neighborhood Change on Incumbent Families," Working Paper Series WP-2019-2, Federal Reserve Bank of Chicago.
    12. Sevrin Waights, 2019. "The preservation of historic districts—is it worth it?," Journal of Economic Geography, Oxford University Press, vol. 19(2), pages 433-464.
    13. Benjamin Faber & Cecile Gaubert, 2019. "Tourism and Economic Development: Evidence from Mexico's Coastline," American Economic Review, American Economic Association, vol. 109(6), pages 2245-2293, June.
    14. Anthony Goerzen & Michael Sartor & Kristin Brandl & Stacey Fitzsimmons, 2023. "Widening the lens: Multilevel drivers of firm corporate social performance," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 54(1), pages 42-60, February.
    15. Gilles Duranton & Geetika Nagpal & Matthew A. Turner, 2020. "Transportation Infrastructure in the US," NBER Chapters, in: Economic Analysis and Infrastructure Investment, pages 165-210, National Bureau of Economic Research, Inc.
    16. Tu Anh Trinh & Ducksu Seo & Unchong Kim & Thi Nhu Quynh Phan & Thi Hai Hang Nguyen, 2022. "Air Transport Centrality as a Driver of Sustainable Regional Growth: A Case of Vietnam," Sustainability, MDPI, vol. 14(15), pages 1-14, August.
    17. Brotherhood, Luiz & Cavalcanti, Tiago & Da Mata, Daniel & Santos, Cezar, 2022. "Slums and pandemics," Journal of Development Economics, Elsevier, vol. 157(C).
    18. Tito Boeri & Andrea Ichino & Enrico Moretti & Johanna Posch, 2021. "Wage Equalization and Regional Misallocation: Evidence from Italian and German Provinces [“Regional Wage Disparities and Migration.”]," Journal of the European Economic Association, European Economic Association, vol. 19(6), pages 3249-3292.
    19. Pels, Eric, 2021. "Product differentiation and network optimality," Transport Policy, Elsevier, vol. 110(C), pages 415-429.
    20. Ufuk Akcigit & Salomé Baslandze & Francesca Lotti, 2023. "Connecting to Power: Political Connections, Innovation, and Firm Dynamics," Econometrica, Econometric Society, vol. 91(2), pages 529-564, March.

    More about this item

    Keywords

    Co-locating with government; Firm value effects; Headquarters location; German government relocation;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:oup:revfin:v:27:y:2023:i:4:p:1269-1296.. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Oxford University Press (email available below). General contact details of provider: https://edirc.repec.org/data/eufaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.