Precious Neighbors: The Value of Co-locating with the Government
41 Pages Posted: 22 Mar 2021
Date Written: March 10, 2021
I analyze the firm value of co-locating with the government. Since neither firms nor gov- ernments move randomly, this value is normally hard to identify. I solve this problem by examining a unique event - the decision to relocate the German federal government from Bonn to Berlin in 1991. Following reunification, there was a free vote in the German parliament on the future location of the government. Berlin won by a narrow margin, an event that could not be anticipated even days before and that is free from confounding fac- tors. Firms with corporate headquarters in Berlin experience abnormal equity returns of about 3.5 percent following the relocation decision. These value effects are predominantly realized by firms in lobbying-intensive industries.
Keywords: spatial proximity to politicians, firm value effects, German government relocation
JEL Classification: D72, G30, B26
Suggested Citation: Suggested Citation