Local Spillover Effects and Corporate Investment
Authors: Bao Yangming (Goethe University)
Title: Local Spillover Effects and Corporate Investment
Abstract: In this paper, we explore local peer effects for corporate investment. The effect is ambiguous according to several economic theories and its identification is difficult. In contrast with previous literature in peer effects, we adopt different specification strategies, which allow us to control time varying local attributes. Additionally, using staggered changes in states’ corporate income tax rate we are able to identify a causal impact of local peer firms and our results show that local firms positively impact firms’ investments. This is consistent with theories that peers provide relevant information about economic fundamentals. To understand the channels underlying these positive spillovers, we explore the heterogeneity of this effect across regions and industries. Specifically, we focus on how social interactions among workers affect the synchronization of local peer firms’ investments.