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  • March 2009
  • Article
  • Review of Financial Studies

Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion

By: Augustin Landier, Vinay Nair and Julie Wulf
  • Format:Print
  • | Pages:30
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Abstract

We document the role of geographic dispersion on corporate decision-making. Our findings include: (i) geographically dispersed firms are less employee friendly; (ii) dismissals of divisional employees are less common in divisions located closer to corporate headquarters; and (iii) firms appear to adopt a "pecking-order" and divest out-of-state entities before in-state. To explain these findings, we consider both information and social factors. We find that firms are more likely to protect proximate employees in soft information industries (i.e. when information is difficult to transfer over long distances). However, employee protection only holds when headquarters is located in a less-populated county suggesting a role for social factors. Additionally, stock markets respond favorably to divestitures of in-state divisions. Our findings suggest that social factors work alongside informational considerations in making geographic dispersion an important factor in corporate decision-making.

Keywords

Business Divisions; Business Headquarters; Decision Choices and Conditions; Geographic Location; Employees; Resignation and Termination; Retention

Citation

Landier, Augustin, Vinay Nair, and Julie Wulf. "Trade-offs in Staying Close: Corporate Decision Making and Geographic Dispersion." Review of Financial Studies 22, no. 3 (March 2009): 1119–1148.
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  • Who Lives in the C-Suite? Organizational Structure and the Division of Labor in Top Management By: Maria Guadalupe, Hongyi Li and Julie Wulf
  • Pay Harmony: Peer Comparison and Executive Compensation By: Claudine Gartenberg and Julie Wulf
  • The Flattening Firm—Not As Advertised By: Julie Wulf
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