Hostname: page-component-586b7cd67f-2plfb Total loading time: 0 Render date: 2024-11-26T07:42:15.488Z Has data issue: false hasContentIssue false
  • English
  • Français

The Causal Effects of Proximity on Investment: Evidence from Flight Introductions

Published online by Cambridge University Press:  09 August 2019

Jesse Ellis Open the ORCID record for Jesse Ellis [Opens in a new window] ,
Leonardo Madureira  and
Shane Underwood
Jesse Ellis*
Affiliation:
Ellis, [email protected], North Carolina State University Poole College of Management
Leonardo Madureira
Affiliation:
Madureira, [email protected], Case Western Reserve University Weatherhead School of Management
Shane Underwood
Affiliation:
Underwood, Baylor University Hankamer School of Business
*
Ellis (corresponding author), [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

We use the introduction of direct flights as an exogenous shock to the travel time between mutual funds and firms to estimate the causal effects of proximity on fund investment decisions and performance. We find that a fund invests significantly more in firms that become more proximate following the introduction of direct flights and that these more proximate investments exhibit superior performance. Our findings are robust to including a variety of fixed effects and potential confounders such as firm-level shocks, fund-level shocks, and time trends. Collectively, our results indicate that proximity enhances investors’ ability to acquire value-relevant information about firms.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 6 , September 2020 , pp. 1978 - 2004
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We thank an anonymous referee, Will Gerken, Jarrad Harford (the editor), Marcin Kacperczyk, Zafer Yuksel, participants at the 2017 European Finance Association conference, participants at the 2017 Financial Management Association conference, and seminar participants at Baylor University and Case Western Reserve University. All errors are our own.

References

Ball, M.; Barnhart, C.; Dresner, M.; Hansen, M.; Neels, K.; Odoni, A.; Peterson, E.; Sherry, L.; Trani, A. A.; and Zou, B.. “Total Delay Impact Study: A Comprehensive Assessment of the Costs and Impacts of Flight Delay in the United States.” White Paper, Federal Aviation Administration–NEXTOR (2010).Google Scholar
Bernile, G.; Kogan, S.; and Sulaeman, J.. “Information Environment and the Geography of Firms and Investors.” Working Paper, Southern Methodist University (2015).10.2139/ssrn.2565210CrossRefGoogle Scholar
Bernile, G.; Kumar, A.; and Sulaeman, J.. “Home Away from Home: Geography of Information and Local Investors.” Review of Financial Studies, 28 (2015a), 2009–2049.10.1093/rfs/hhv004CrossRefGoogle Scholar
Bernile, G.; Kumar, A.; and Sulaeman, J.. “Leveling the Playing Field: Financial Regulation and Disappearing Local Bias of Institutional Investors.” Working Paper, Southern Methodist University (2015b).Google Scholar
Bernstein, S.; Giroud, X.; and Townsend, R.. “The Impact of Venture Capital Monitoring.” Journal of Finance, 71 (2016), 1591–1622.10.1111/jofi.12370CrossRefGoogle Scholar
Bertrand, M., and Mullainathan, S.. “Enjoying the Quiet Life? Corporate Governance and Managerial Preferences.” Journal of Political Economy, 111 (2003), 1043–1075.10.1086/376950CrossRefGoogle Scholar
Bodnaruk, A.“Proximity Always Matters: Local Bias When the Set of Local Companies Changes.” Review of Finance, 13 (2009), 629–656.10.1093/rof/rfp014CrossRefGoogle Scholar
Bushee, B. J.; Gerakos, J.; and Lee, L. F.. “Corporate Jets and Private Meetings with Investors.” Journal of Accounting and Economics, 65 (2018), 358–379.10.1016/j.jacceco.2018.01.005CrossRefGoogle Scholar
Bushee, B. J., and Miller, G. S.. “Investor Relations, Firm Visibility, and Investor Following.” The Accounting Review, 87 (2012), 867–897.10.2308/accr-10211CrossRefGoogle Scholar
Cheng, Q.; Du, F.; Wang, B. Y.; and Wang, X.. “Do Corporate Site Visits Impact Stock Prices?” Contemporary Accounting Research, 36 (2019), 359–388.10.1111/1911-3846.12417CrossRefGoogle Scholar
Coval, J., and Moskowitz, T.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.10.1111/0022-1082.00181CrossRefGoogle Scholar
Coval, J., and Moskowitz, T.. “The Geography of Investment: Informed Trading and Asset Prices.” Journal of Political Economy, 109 (2001), 811–841.10.1086/322088CrossRefGoogle Scholar
Cremers, M., and Petajisto, A.. “How Active Is Your Fund Manager? A New Measure That Predicts Performance.” Review of Financial Studies, 22 (2009), 3329–3365.10.1093/rfs/hhp057CrossRefGoogle Scholar
Cross Border Group. “Global Survey on Roadshow Practices.” (2010).Google Scholar
Daniel, K.; Grinblatt, M.; Titman, S.; and Wermers, R.. “Measuring Mutual Fund Performance with Characteristic-Based Benchmarks.” Journal of Finance, 52 (1997), 1035–1058.10.1111/j.1540-6261.1997.tb02724.xCrossRefGoogle Scholar
Giroud, X.“Proximity and Investment: Evidence from Plant-Level Data.” Quarterly Journal of Economics, 128 (2013), 861–915.10.1093/qje/qjs073CrossRefGoogle Scholar
Heath, C., and Tversky, A.. “Preference and Beliefs: Ambiguity and Competence in Choice Under Uncertainty.” Journal of Risk and Uncertainty, 4 (1991), 5–28.10.1007/BF00057884CrossRefGoogle Scholar
Huberman, G.“Familiarity Breeds Investment.” Review of Financial Studies, 14 (2001), 659–680.10.1093/rfs/14.3.659CrossRefGoogle Scholar
Ivković, Z., and Weisbenner, S.. “Local Does as Local Is: Information Content of the Geography of Individual Investors’ Common Stock Investments.” Journal of Finance, 60 (2005), 267–306.CrossRefGoogle Scholar
Koch, A.“Herd Behavior and Mutual Fund Performance.” Management Science, 63 (2017), 3849–3873.10.1287/mnsc.2016.2543CrossRefGoogle Scholar
Massa, M., and Simonov, A.. “Hedging, Familiarity and Portfolio Choice.” Review of Financial Studies, 19 (2006), 633–685.10.1093/rfs/hhj013CrossRefGoogle Scholar
Pool, V.; Stoffman, N.; and Yonker, S.. “The People in Your Neighborhood: Social Interactions and Mutual Fund Portfolios.” Journal of Finance, 70 (2015), 2679–2732.CrossRefGoogle Scholar
Seasholes, M. S., and Zhu, N.. “Individual Investors and Local Bias.” Journal of Finance, 65 (2010), 1987–2010.10.1111/j.1540-6261.2010.01600.xCrossRefGoogle Scholar
Sialm, C.; Sun, S.; and Zheng, L.. “Home Bias and Local Contagion: Evidence from Funds of Hedge Funds.” Working Paper, National Bureau of Economic Research (2013).10.3386/w19570CrossRefGoogle Scholar
Solomon, D., and Soltes, E.. “What Are We Meeting For? The Consequences of Private Meetings with Investors.” Journal of Law and Economics, 58 (2015), 325–355.10.1086/684038CrossRefGoogle Scholar
Sulaeman, J.“Do Local Investors Know More? Evidence from Mutual Fund Location and Investments.” Quarterly Journal of Finance, 4 (2014), 1450010.CrossRefGoogle Scholar