Industry Networks and the Geography of Firm Behavior
101 Pages Posted:
Date Written: March 16, 2020
We consider the role of local geographic peers in determining equilibrium firm behavior. We exploit intransitivity in local peer-firm networks and utilize spatial econometric techniques to circumvent well-known challenges in estimating and interpreting empirical models of peer effects. We find that geography network effects play a highly significant causal role in explaining corporate investment decisions, and these effects play a much more modest role in explaining financial policies and firm performance. We then implement a novel structured network regression to separately identify the effects of geography, product markets, and supply-chain networks. We find that local externalities in firm behavior operate almost exclusively within industry boundaries, and geographic effects outside industry boundaries are moderately evident only for corporate investment decisions.
Keywords: Networks, Peer Effects, Agglomeration Economies, Corporate Investment, Capital Structure, Firm Performance, Geography, Spatial Econometrics
JEL Classification: G10, G31, G32, L20, L23, L25, R10, R11, R12, R15
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