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Geographic spillover of dominant firms’ shocks

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  • Jannati, Sima

Abstract

This paper shows that productivity shocks to the 100 largest U.S. firms (by revenue) contain systematic information. Specifically, shocks to the top-100 firms predict future shocks to geographically close firms. Intra-sector trade links are an important economic channel for spillover effects. However, these spillovers are not restricted to firms’ trade links only. Knowledge externalities and state income tax payments of the top-100 firms are other economic channels through which shocks propagate. Market participants do not fully incorporate the information contained in shocks to the top-100 firms. Consequently, a portfolio analysis that exploits the slow diffusion of information generates an annual risk-adjusted return of 5.4%. Overall, the results show how productivity shocks to the few largest firms in the U.S. spillover to other firms and potentially aggregate to affect the national economy.

Suggested Citation

  • Jannati, Sima, 2020. "Geographic spillover of dominant firms’ shocks," Journal of Banking & Finance, Elsevier, vol. 118(C).
  • Handle: RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301102
    DOI: 10.1016/j.jbankfin.2020.105844
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    More about this item

    Keywords

    Top-100 firms; Productivity shocks; Systematic information; Geographic spillover; Information diffusion;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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