67 Pages Posted: 22 May 2012 Last revised: 21 May 2016
Date Written: May 20, 2015
We use information from 10-K filings to identify economic connections among U.S. states. These connections provide a measure of economic distance that does not merely reflect physical proximity or industry connections. At the firm level, there is excess comovement in the returns and liquidity of firms headquartered in economically connected states. At the aggregate level, the economic connections create spillover effects whereby economic shocks in a state affect its connected states and the U.S. economy. For example, a one percent production shock in California (Texas) is related to a 6.71 (5.62) percent change in annual U.S. GDP growth, relative to the average GDP growth. Collectively, the network of publicly-traded firms generates a channel that facilitates the propagation of local shocks across the U.S. economy.
Keywords: Economic networks, 10-K reports, U.S. states, Gross state product (GSP), predictability
JEL Classification: C23, E32, E37, G10
Suggested Citation: Suggested Citation
Bernile, Gennaro and Delikouras, Stefanos and Korniotis, George M. and Kumar, Alok, Geography of Firms and Propagation of Local Economic Shocks (May 20, 2015). Available at SSRN: https://ssrn.com/abstract=2064141 or http://dx.doi.org/10.2139/ssrn.2064141