Geographic Spillovers and Corporate Decisions

We investigate the association between geographic spillovers and corporate investment and accruals decisions. We hypothesize that if geographic areas differ by the degree of information sharing among local people, then the quality of managerial decisions can be affected by higher information flow in high-spillover areas. We construct a measure of geographic spillover intensity based on distances among firms in a metropolitan statistical area and test whether geographic spillovers are related to (1) the similarity and (2) the quality of corporate decisions. The findings indicate that in high-spillover areas, managers' investment and accruals decisions are more similar and have better quality than in low-spillover areas. Our findings contribute to a growing literature on the role of geographic information flow and its effect on corporate outcomes