Geographic dispersion and stock returns

This paper shows that stocks of truly local firms have returns that exceed the return on stocks of geographically dispersed firms by 70 basis points per month. By extracting state name counts from annual reports filed with the Securities and Exchange Commission (SEC) on Form 10-K, we distinguish fir...

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Bibliographic Details
Published in:Journal of financial economics 2012-12, Vol.106 (3), p.547-565
Main Authors: Garcia, D, Norli, O
Format: Article
Language:English
Subjects:
Annual reports
Business management
Financial economics
Geography
Investment policy
Investors
Location of industry
Portfolio diversification
Rates of return
Stock exchange
Stock returns
Studies
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Summary:This paper shows that stocks of truly local firms have returns that exceed the return on stocks of geographically dispersed firms by 70 basis points per month. By extracting state name counts from annual reports filed with the Securities and Exchange Commission (SEC) on Form 10-K, we distinguish firms with business operations in only a few states from firms with operations in multiple states. Our findings are consistent with the view that lower investor recognition for local firms results in higher stock returns to compensate investors for insufficient diversification. [PUBLICATION ABSTRACT]
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2012.06.007