Does Intergenerational Mobility Increase Corporate Profits?

38 Pages Posted: 27 Nov 2019

See all articles by James F. Albertus

James F. Albertus

Carnegie Mellon University - David A. Tepper School of Business

Michael Smolyansky

Board of Governors of the Federal Reserve System

Date Written: 2019-11-20

Abstract

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 association between intergenerational mobility and corporate profitability. Our regressions compare firms in 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 argue that our findings are best explained by intergenerational mobility influencing human capital formation. Areas with higher mobility do a better job in unlocking their residents' innate talents, which in turn is associated with improved performance by locally headquartered firms. In essence, our results uncover a positive link between greater equality of opportunity and increased corporate profitability.

Keywords: Intergenerational mobility, Corporate profitability, Human capital

JEL Classification: G30, G32, J24, J62, R10

Suggested Citation

Albertus, James F. and Smolyansky, Michael, Does Intergenerational Mobility Increase Corporate Profits? (2019-11-20). FEDS Working Paper No. 2019-081. Available at SSRN: https://ssrn.com/abstract=3492188 or http://dx.doi.org/10.17016/FEDS.2019.081

James F. Albertus (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Michael Smolyansky

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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