Working Paper: NBER ID: w13660
Authors: Andres Almazan; Adolfo De Motta; Sheridan Titman; Vahap Uysal
Abstract: This paper investigates the relation between a firm's location and its corporate finance decisions. We develop a simple model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more financial slack. Consistent with our model we find that firms that are located within industry clusters tend to make more acquisitions, and have lower debt ratios and larger cash balances than their industry peers located outside clusters. In addition, we document that firms in growing cities and technology centers also maintain more financial slack. Overall, these findings, which reveal systematic patterns between geography and corporate finance choices, suggest the importance of growth opportunities in firms' financial decisions.
Keywords: corporate finance; location; acquisitions; financial slack; industry clusters
JEL Codes: G30; G32; G34; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Firms located within industry clusters (R32) | make more acquisitions (G34) |
| Firms in clusters (R32) | maintain lower debt ratios (G32) |
| Firms in clusters (R32) | maintain larger cash balances (E41) |
| Acquisition activity (G34) | financial slack (G53) |
| Leverage (G32) | acquisition activity (G34) |
| Location characteristics (R32) | financial slack (G53) |