Does Intergenerational Mobility Increase Corporate Profits?
37 Pages Posted: 17 Jul 2019
Date Written: July 1, 2019
We find that firms located in areas with higher intergenerational mobility are more profitable. Building off the work of Chetty and Hendren (2018a and 2018b) — who provide measures of intergenerational mobility for all commuting zones (essentially, metropolitan areas) within the U.S. — we are the first to show the positive link between intergenerational mobility and corporate profitability. Our regressions compare firms within the same industry at the same point in time and fully control for time-varying state-level shocks. As such, our findings cannot be explained by either differences in industry composition across localities or by variation in state-level economic conditions; nor can our results be explained by differences in firm characteristics or by local economic conditions. Rather, we present evidence for a human-capital-based explanation: areas with higher mobility do a better job in unlocking people’s innate talents, which in turn has a positive effect on the performance of firms headquartered in these locations. Our results therefore show that greater equality of opportunity is associated with increased corporate profitability.
Keywords: intergenerational mobility, corporate profitability, human capital
JEL Classification: J62, J24, G30, G32, R10
Suggested Citation: Suggested Citation