The Stock Market Tips
47 Pages Posted: 25 Feb 2020 Last revised: 4 Apr 2022
Date Written: February 13, 2020
We investigate the influence of public companies on their local economies through the spending of their employees on local goods and services. Using the taxicab industry in New York City as a laboratory, we find that tips paid for taxis taken near firms’ headquarters are higher on the days the firms’ stock returns are higher. This effect is short-lived, is stronger for firms offering greater stock-based compensation, and varies across industries. In addition, tipping increases gradually following the initial public offerings (IPOs) of firms, and this increase becomes significant at the end of the IPO lock-up period. Idiosyncratic stock returns are more strongly associated with tipping than are aggregate stock market or industry returns, suggesting that the increase in tipping with stock returns is due to firm-level factors. The number of taxis taken near firms’ headquarters, too, increases with their stock returns. Additional tests suggest that these findings are non-spurious.
Keywords: Corporate Headquarters Location; Local Economic Activity; Discretionary Spending; Stock Market Wealth Effects
JEL Classification: G30, G19, G51, G40, D10, D31, M52
Suggested Citation: Suggested Citation