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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, jaellis5@ncsu.edu, North Carolina State University Poole College of Management
Leonardo Madureira
Affiliation:
Madureira, llm17@case.edu, Case Western Reserve University Weatherhead School of Management
Shane Underwood
Affiliation:
Underwood, Baylor University Hankamer School of Business
*
Ellis (corresponding author), jaellis5@ncsu.edu
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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

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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.

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