Proximity and Investment: Evidence from Plant-Level Data

By Xavier Giroud. 2012

537 citations recorded by the source corpus.

Proximity to plants makes it easier for headquarters to monitor and acquire information about plants. In this article, I estimate the effects of headquarters' proximity to plants on plant-level investment and productivity. Using the introduction of new airline routes as a source of exogenous variation in proximity, I find that new airline routes that reduce the travel time between headquarters and plants lead to an increase in plant-level investment of 8% to 9% and an increase in plants' total factor productivity of 1.3% to 1.4%. The results are robust when I control for local and firm-level shocks that could potentially drive the introduction of new airline routes, when I consider only new airline routes that are the outcome of a merger between two airlines or the opening of a new hub, and when I consider only indirect flights where either the last leg of the flight (involving the plant's home airport) or the first leg of the flight (involving headquarters' home airport) remains unchanged. Moreover, the results are stronger in the earlier years of the sample period and for firms whose headquarters is more time-constrained. In addition, they also hold at the extensive margin, that is, when I consider plant openings and closures. JEL Codes: D24, G31. Copyright 2013, Oxford University Press.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/32cee3219c365f79bcdb32d7e34fe64c2cc8ca13

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Citations in the corpus

Board Diversity, Firm Risk, and Corporate Policies (2017, unknown): “To do so, we propose a novel instrumental variable approach that builds on the work of Giroud (2013) and may have wider applications in future studies of board composition.”
On the fast track: Information acquisition costs and information production (2020, background): “Although this expectation is common to any study investigating improvements in information environment, testing it empirically is not always feasible, often simply because a public equity market does not exist (e.g., Giroud 2013; Bernstein et al. 2016).”
The Real Effects of Hedge Fund Activism: Productivity, Asset Allocation, and Labor Outcomes (2011, unknown): “…output for each plant, we follow the literature (e.g., Lichtenberg and Siegel 1990; Lichtenberg 1992; Schoar 2002; Bertrand and Mullainathan 2003; Giroud 2013) and estimate the following log-linear Cobb-Douglas production function using ordinary least squares regressions by three-digit SIC…”
Information Environment and the Investment Decisions of Multinational Corporations (2013, methodology): “In addition, we repeat our analyses using total factor productivity as an alternative proxy for investment efficiency (Schoar 2002; Giroud 2013).”
Capital and Labor Reallocation within Firms (2015, methodology): “To compute the fastest way of traveling between headquarters and plants, we follow Giroud (2013) and determine the route and means of transportation that minimizes the total travel time between the plant’s ZIP code and the ZIP code of headquarters.”
Temperature Shocks and Establishment Sales (2020, methodology): “Giroud (2013) demonstrates that proximity to headquarters serves to boost plant-level investment and productivity.”
Home Away From Home: Geography of Information and Local Investors (2015, background): “Geographically dispersed firms may not be able to collect and report information as efficiently as geographically concentrated firms (e.g., Aarland, Davis, Henderson, and Ono (2007), Giroud (2013)).”
Corporate Innovation Along the Supply Chain (2018, unknown): “…traveling time Given that the average distance between a supplier and its customer in our sample is about 900 miles, one may argue that the minimum point-to-point traveling time is a better measure of the cost or friction induced by geographic distance (see e.g., Catalini et al. 2016, Giroud 2013).”
Tax Rates and Corporate Decision Making (2017, unknown): “…presence of internal capital markets and greater agency problems from having geographic dispersed operations (e.g., Desai, Foley, and Hines 2004, Giroud 2013, and Shroff, Verdi, and Yu 2014), thereby creating a potential correlated omitted variable problem. corporate outcomes even for firms…”