Do Political Boundaries Affect Firm Boundaries?

32 Pages Posted: 13 Jun 2018

See all articles by Matthew Denes

Matthew Denes

Carnegie Mellon University - Tepper School of Business

Florian Schulz

University of Washington

Vikrant Vig

London Business School

Date Written: November 2017

Abstract

We investigate how changes in legislative boundaries affect firms in the U.S. Every decade, states redraw their congressional districts to account for changing population dynamics within the state and across the country. We find that redistricting imposes considerable costs on firms that operate in districts whose boundaries change. At the state level, we document that firm-level uncertainty significantly increases when new district lines are drawn. Additionally, firms affected by these new boundaries experience negative abnormal equity returns. Within a state, we examine firms who experience a change in representation due to redistricting relative to those firms whose representation is unaffected. We find that redistricted firms decrease capital expenditures and investment in R&D, and there is a higher likelihood of subsequently relocating. These effects are stronger for standalone firms. Taken together, this paper provides evidence about the link between political boundaries and the boundaries of firms.

Keywords: Redistricting, Political Boundaries, Investment

JEL Classification: D72, D73, D78

Suggested Citation

Denes, Matthew and Schulz, Florian and Vig, Vikrant, Do Political Boundaries Affect Firm Boundaries? (November 2017). Available at SSRN: https://ssrn.com/abstract=3192213 or http://dx.doi.org/10.2139/ssrn.3192213

Matthew Denes (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

HOME PAGE: http://sites.google.com/site/matthewdenes

Florian Schulz

University of Washington

Box 353226
Seattle, WA 98195
United States

HOME PAGE: http://sites.google.com/site/schulzflor/home/personal

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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