Local Happiness and Firm Behavior: Do Firms in Happy Places Invest More?

42 Pages Posted: 4 Apr 2015 Last revised: 4 Feb 2016

Tuugi Chuluun

Loyola University Maryland

Carol Graham

Brookings Institution - Center on Social and Economic Dynamics; University of Maryland

Date Written: December 20, 2015

Abstract

We examine a previously unexplored relationship between local happiness and firm investment. We looked at investment in general and R&D intensity in particular, as the relatively intangible nature of the latter may make it more subject to the effects of sentiment and affect. We find that average local happiness is positively correlated with both R&D intensity and firm investment, after controlling for firm and local area characteristics. This positive relationship may be due to the optimism and longer term perspectives that are typically associated with higher levels of life satisfaction/happiness. We also look at inequality in happiness levels and find that the effect of local happiness is stronger in places with more equal happiness distributions. Younger firms’ investment behavior is also more strongly correlated with local happiness levels. The results remain robust to a battery of robustness tests including the use of residual and hedonic measures of happiness, analysis of a sample of relocated firms, and a test for reverse causality.

Keywords: happiness; subjective well-being; sentiment; location; R&D; investment

JEL Classification: G02; G31; I31; D69

Suggested Citation

Chuluun, Tuugi and Graham, Carol, Local Happiness and Firm Behavior: Do Firms in Happy Places Invest More? (December 20, 2015). Journal of Economic Behavior and Organization, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2589238 or http://dx.doi.org/10.2139/ssrn.2589238

Tuugi Chuluun (Contact Author)

Loyola University Maryland ( email )

4501 North Charles Street
Baltimore, MD 21210-2699
United States

Carol Graham

Brookings Institution - Center on Social and Economic Dynamics ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
(202) 797-6022 (Phone)
(202) 797-2968 (Fax)

University of Maryland ( email )

College Park
College Park, MD 20742
United States

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