IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/18312.html
   My bibliography  Save this paper

Resident Networks and Firm Trade

Author

Listed:
  • Lauren Cohen
  • Umit G. Gurun
  • Christopher J. Malloy

Abstract

We demonstrate that simply by using the ethnic makeup surrounding a firm's location, we can predict, on average, which trade links are valuable for firms. Using customs and port authority data on the international shipments of all U.S. publicly-traded firms, we show that firms are significantly more likely to trade with countries that have a strong resident population near their firm headquarters. We use the formation of World War II Japanese Internment Camps to isolate exogenous shocks to local ethnic populations, and identify a causal link between local networks and firm trade links. Firms that exploit their local networks (strategic traders) see significant increases in future sales growth and profitability, and outperform other importers and exporters by 5%-7% per year in risk-adjusted stock returns. In sum, our results document a surprisingly large impact of immigrants' economic role as conduits of information for firms in their new countries.

Suggested Citation

  • Lauren Cohen & Umit G. Gurun & Christopher J. Malloy, 2012. "Resident Networks and Firm Trade," NBER Working Papers 18312, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18312 Note: AP ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w18312.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kewei Hou, 2007. "Industry Information Diffusion and the Lead-lag Effect in Stock Returns," Review of Financial Studies, Society for Financial Studies, vol. 20(4), pages 1113-1138.
    2. Hong, Harrison & Torous, Walter & Valkanov, Rossen, 2007. "Do industries lead stock markets?," Journal of Financial Economics, Elsevier, vol. 83(2), pages 367-396, February.
    3. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    4. Konrad B. Burchardi & Tarek A. Hassan, 2013. "The Economic Impact of Social Ties: Evidence from German Reunification," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 1219-1271.
    5. Daron Acemoglu & Vasco M. Carvalho & Asuman Ozdaglar & Alireza Tahbaz‐Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 80(5), pages 1977-2016, September.
    6. Garmendia, Aitor & Llano, Carlos & Minondo, Asier & Requena, Francisco, 2012. "Networks and the disappearance of the intranational home bias," Economics Letters, Elsevier, vol. 116(2), pages 178-182.
    7. C. A. Hidalgo & B. Klinger & A. -L. Barabasi & R. Hausmann, 2007. "The Product Space Conditions the Development of Nations," Papers 0708.2090, arXiv.org.
    8. Combes, Pierre-Philippe & Lafourcade, Miren & Mayer, Thierry, 2005. "The trade-creating effects of business and social networks: evidence from France," Journal of International Economics, Elsevier, vol. 66(1), pages 1-29, May.
    9. Cohen, Lauren & Lou, Dong, 2012. "Complicated firms," Journal of Financial Economics, Elsevier, vol. 104(2), pages 383-400.
    10. David W Loree & Stephen E Guisinger, 1995. "Policy and Non-Policy Determinants of U.S. Equity Foreign Direct Investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 26(2), pages 281-299, June.
    11. Laura Casares Field & Jonathan M. Karpoff, 2002. "Takeover Defenses of IPO Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1857-1889, October.
    12. Brad M. Barber & Terrance Odean, 2008. "All That Glitters: The Effect of Attention and News on the Buying Behavior of Individual and Institutional Investors," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 785-818, April.
    13. Merton, Robert C, 1987. " A Simple Model of Capital Market Equilibrium with Incomplete Information," Journal of Finance, American Finance Association, vol. 42(3), pages 483-510, July.
    14. Gould, David M, 1994. "Immigrant Links to the Home Country: Empirical Implications for U.S. Bilateral Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 302-316, May.
    15. Yigang Pan & Shaomin Li & David K Tse, 1999. "The Impact of Order and Mode of Market Entry on Profitability and Market Share," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 30(1), pages 81-103, March.
    16. Tim Loughran & Jay Ritter, 2004. "Why Has IPO Underpricing Changed Over Time?," Financial Management, Financial Management Association, vol. 33(3), Fall.
    17. Harrison Hong & Jeremy C. Stein, 2007. "Disagreement and the Stock Market," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 109-128, Spring.
    18. Harrison Hong & Jeremy C. Stein, 1999. "A Unified Theory of Underreaction, Momentum Trading, and Overreaction in Asset Markets," Journal of Finance, American Finance Association, vol. 54(6), pages 2143-2184, December.
    19. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    20. Degeorge, Francois & Patel, Jayendu & Zeckhauser, Richard, 1999. "Earnings Management to Exceed Thresholds," The Journal of Business, University of Chicago Press, vol. 72(1), pages 1-33, January.
    21. Lauren Cohen & Andrea Frazzini, 2008. "Economic Links and Predictable Returns," Journal of Finance, American Finance Association, vol. 63(4), pages 1977-2011, August.
    22. Casella, Alessandra & Rauch, James E., 2002. "Anonymous market and group ties in international trade," Journal of International Economics, Elsevier, vol. 58(1), pages 19-47, October.
    23. Sanjeev Agarwal & Sridhar N Ramaswami, 1992. "Choice of Foreign Market Entry Mode: Impact of Ownership, Location and Internationalization Factors," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 23(1), pages 1-27, March.
    24. David Hirshleifer & Sonya Seongyeon Lim & Siew Hong Teoh, 2009. "Driven to Distraction: Extraneous Events and Underreaction to Earnings News," Journal of Finance, American Finance Association, vol. 64(5), pages 2289-2325, October.
    25. Darrell Duffie, 2010. "Presidential Address: Asset Price Dynamics with Slow-Moving Capital," Journal of Finance, American Finance Association, vol. 65(4), pages 1237-1267, August.
    26. James E. Rauch, 2001. "Business and Social Networks in International Trade," Journal of Economic Literature, American Economic Association, vol. 39(4), pages 1177-1203, December.
    27. Gur Huberman, 2001. "Contagious Speculation and a Cure for Cancer: A Nonevent that Made Stock Prices Soar," Journal of Finance, American Finance Association, vol. 56(1), pages 387-396, February.
    28. James E. Rauch & Vitor Trindade, 2002. "Ethnic Chinese Networks In International Trade," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 116-130, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. William R. Kerr, 2013. "Heterogeneous Technology Diffusion and Ricardian Trade Patterns," NBER Working Papers 19657, National Bureau of Economic Research, Inc.
    2. Pierre-Louis Vezina & Christopher Parsons, 2014. "Migrant Networks and Trade: The Vietnamese Boat People as a Natural Experiment," Economics Series Working Papers 705, University of Oxford, Department of Economics.
    3. Steingress, Walter, 2015. "The Causal Impact of Migration on US Trade: Evidence from a Natural Experiment," IZA Discussion Papers 9058, Institute for the Study of Labor (IZA).
    4. Fuchs-Schündeln, N. & Hassan, T.A., 2016. "Natural Experiments in Macroeconomics," Handbook of Macroeconomics, Elsevier.
    5. Michael Good, 2012. "How Localized is the Pro-trade Effect of Immigration? Evidence from Mexico and the United States," Working Papers 1203, Florida International University, Department of Economics.

    More about this item

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F30 - International Economics - - International Finance - - - General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:nbr:nberwo:18312. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.