Industry Networks and the Geography of Firm Behavior
Management Science, Forthcoming
101 Pages Posted: 5 May 2020 Last revised: 18 May 2021
Date Written: February 1, 2021
Using a network approach that circumvents well-known challenges in estimating peer eﬀects, we show that interactions with a ﬁrm’s geographic neighbors play a signiﬁcant causal role in corporate investment behavior, and a modest role in ﬁnancial policies and ﬁrm performance. Moreover, these geography network eﬀects are almost entirely driven by propagation eﬀects through product market and supply chain networks. We corroborate our ﬁndings in a quasi-experimental framework that allows for spillovers in treatment eﬀects. Our ﬁndings help rationalize industrial clusters (e.g., Silicon Valley), as they illustrate that agglomeration economies are substantial and operate predominantly within industry boundaries.
Keywords: Networks, Peer Effects, Agglomeration Economies, Corporate Investment, Capital Structure, Firm Performance, Geography, Spatial Econometrics
JEL Classification: G31, G32, L20, L23, L25, R11, R12, R15
Suggested Citation: Suggested Citation