Geography of Firms and Propagation of Local Economic Conditions
66 Pages Posted: 22 May 2012 Last revised: 26 Jul 2021
Date Written: June 16, 2020
Abstract
This study shows that the geographic network of public firms facilitates the propagation of local economic conditions across the U.S. We identify economic connections among U.S. states based on the 10-K listings of public firms and show that the returns and liquidity of firms headquartered in connected states exhibit excess comovement. The economic connections also generate spillover effects where the economy of a state affects its connected states and amplifies the impact of local economic conditions on the U.S. economy. In particular, a 1% production increase in a large state like California is associated with a 6.71% change in annual U.S. GDP growth, relative to average GDP growth.
Keywords: Economic networks, 10-K filings, Gross State Product, predictability, return comovement, liquidity, sales
JEL Classification: C23, E32, E37, G10
Suggested Citation: Suggested Citation
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