Non-pecuniary Benefits: Evidence from the Location of Private Company Sales
Forthcoming at the Review of Corporate Finance Studies
87 Pages Posted: 13 Apr 2014 Last revised: 24 Feb 2024
Date Written: January 29, 2024
Abstract
This paper investigates whether acquisition prices reflect a specific set of non-pecuniary benefits preferred by entrepreneurs: the quality of life (QOL) associated with the business location. Using data on private firm acquisitions, we find that target firms in high-QOL cities sell for a 14 to 20% premium. Traditional financial factors do not explain this premium and it dissipates when the buyer is unlikely to have preferences for high-QOL locations. Using wage-to-housing cost differentials to decompose local amenities and data on migration patterns, we find that QOL amenities have a greater impact on entrepreneurs' location decisions relative to wage workers.
Keywords: Private Equity, Valuation, Geography, Amenities, Entrepreneurship
JEL Classification: G02, G32, G34, J32, L26, R39
Suggested Citation: Suggested Citation