Geographical Vibrancy and Firm Performance

Abstract

We develop a geographical-based vibrancy index using important location characteristics that measure local economic health. We show that local vibrancy is associated with future firm outcomes, including investment, leverage, profitability, and firm value. More vibrant firms are located in counties with more highly educated populations, lower unemployment, higher labor force participation rate, higher home values, higher density of firms that pay higher wages, and a higher percent above poverty than are low vibrancy firms. Our results indicate that the local vibrancy of a firm headquarters is an important determinant of firm policies and profitability.

Keywords: geography, firm location, vibrancy, firm characteristics, firm performance

JEL Classification: G10, G11, G23