Do Political Boundaries Affect Firm Boundaries?

We investigate how changes in legislative boundaries affect firms in the U.S. Every decade, states redraw their congressional districts to account for changing population dynamics within the state and across the country. We find that redistricting imposes considerable costs on firms that operate in districts whose boundaries change. At the state level, we document that firm-level uncertainty significantly increases when new district lines are drawn. Additionally, firms affected by these new boundaries experience negative abnormal equity returns. Within a state, we examine firms who experience a change in representation due to redistricting relative to those firms whose representation is unaffected. We find that redistricted firms decrease capital expenditures and investment in R&D, and there is a higher likelihood of subsequently relocating. These effects are stronger for standalone firms. Taken together, this paper provides evidence about the link between political boundaries and the boundaries of firms