Financial Structure, Liquidity, and Firm Locations

37 Pages Posted: 24 Mar 2008

See all articles by Andres Almazan

Andres Almazan

University of Texas at Austin - Department of Finance

Adolfo de Motta

McGill University - Desautels Faculty of Management

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Vahap Bülent Uysal

University of Oklahoma

Multiple version iconThere are 3 versions of this paper

Date Written: March 14, 2008

Abstract

This paper investigates the relation between a firm's location and its corporate finance decisions. We develop a simple model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more financial slack. Consistent with our model we find that firms that are located within industry clusters tend to make more acquisitions, and have lower debt ratios and larger cash balances than their industry peers located outside clusters. In addition, we document that firms in growing cities and technology centers also maintain more financial slack. Overall, these findings, which reveal systematic patterns between geography and corporate finance choices, suggest the importance of growth opportunities in firms' financial decisions.

Keywords: Capital Structure, Cash Balances, Liquidity, M&A

JEL Classification: G32, G34

Suggested Citation

Almazan, Andres and de Motta, Adolfo and Titman, Sheridan and Uysal, Vahap B., Financial Structure, Liquidity, and Firm Locations (March 14, 2008). Available at SSRN: https://ssrn.com/abstract=1108839 or http://dx.doi.org/10.2139/ssrn.1108839

Andres Almazan

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-471-4368 (Phone)
512-471-5073 (Fax)

HOME PAGE: http://www.mccombs.utexas.edu/dept/finance/faculty/profiles/index.asp?addTarget=4

Adolfo De Motta

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vahap B. Uysal

University of Oklahoma ( email )

307 West Brooks
Norman, OK 73019-4004
United States
405-325 5672 (Phone)

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