Urban Vibrancy and Corporate Growth

We find that a firm's investment is highly sensitive to the investments of other firms headquartered nearby, even those in very different industries. It also responds to fluctuations in the cash flows and stock prices (q) of local firms outside its sector. Similar local effects are observed for anticipated investment, as measured by debt and equity offerings. These patterns do not appear to reflect exogenous area shocks (e.g., fluctuations in an area's labor supply), but rather suggest that local agglomeration economies are important determinants of firm investment and growth.