Geographic Dispersion and Corporate Decision-Making

49 Pages Posted: 16 Nov 2005

See all articles by Augustin Landier

Augustin Landier

HEC

Vinay B. Nair

University of Pennsylvania - Finance Department

Julie Wulf

Harvard Business School

Date Written: January 2006

Abstract

We document the role of geographic dispersion on corporate decision-making. First, we find that geographically dispersed firms are less employee-friendly. Second, using division-level data, employee dismissals are less common in divisions located close to corporate headquarters. Third, firms are reluctant to divest in-state divisions. To explain these findings we consider two mechanisms. First, we investigate whether proximity is related to internal information flows. We find that firms are geographically concentrated when information is more difficult to transfer over long distances (soft information industries). Additionally, the protection of proximate employees is stronger in such soft information industries. Second, we investigate how proximity to employees affects managerial alignment with shareholder objectives. We document that the protection of proximate employees only holds when headquarters is located in less-populated counties suggesting concern for proximate employees. Moreover, stock markets respond favorably to divestitures of close divisions, especially for these smaller-county firms. Our findings suggest that social factors work alongside informational considerations in making geographic dispersion an important factor in corporate decision-making.

Keywords: Economic Geography, Dispersion, Employee Friendliness, Proximity, Social Interaction, Layoffs, Divestiture

Suggested Citation

Landier, Augustin and Nair, Vinay B. and Wulf, Julie M., Geographic Dispersion and Corporate Decision-Making (January 2006). Available at SSRN: https://ssrn.com/abstract=848745 or http://dx.doi.org/10.2139/ssrn.848745

Augustin Landier

HEC ( email )

France
+33630006051 (Phone)

HOME PAGE: http://https://sites.google.com/site/augustinlandier/

Vinay B. Nair (Contact Author)

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0004 (Phone)
215-898-6200 (Fax)

Julie M. Wulf

Harvard Business School ( email )

Harvard Business School
Boston, MA
United States

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