In this paper, I show how firms’ investments are sensitive to local economies of agglomeration. By studying firms located in the 95 most populated U.S. Metropolitan Statistical Areas (MSAs), I explore the causal effect of local agglomeration –in terms of the potential density increase of the areas where firms are located –on firms’ investment decisions and growth. My analyses indicate that firms located in more urban agglomerated areas with higher potential for density increase present higher levels of investments and issue higher amounts of debt. These results are explained by network effects and other potential benefits caused by the economies of scale fostered by city growth and the availability of investment opportunities.

Investment Economies of Agglomeration Potential Density Increase
2018 Conference on Frontiers of Factor Investing, Lancaster The 9th International Research Meeting in Business and Management (IRMBAM), Nice, Global Finance Conference, Paris, France, 2018
Incae Business School

Memarian, M. (2018). Economies of Agglomeration and Firm’s Investment. Presented at the Global Finance Conference, Paris, France, 2018.