Date of Completion

3-23-2017

Embargo Period

3-23-2017

Major Advisor

John L. Glascock

Associate Advisor

Jeffrey P. Cohen

Associate Advisor

Dennis R. Heffley

Field of Study

Business Administration

Degree

Doctor of Philosophy

Open Access

Open Access

Abstract

This dissertation consists of three essays on the geography of finance. In the first essay, we study the relation between geographic dispersion and firm value. In the context of asset-sells, information asymmetry hypothesis and managerial alignment hypothesis offer opposite predictions on the market reaction to asset-sell announcements. Real estate investment trusts (REIT) firms provide an ideal setting to investigate these two competing but not mutually exclusive effects. We construct a unique panel data of more than 800,000 property-year observations and apply a two-stage sequential decision-making method to mitigate selection bias at both firm level and property level. We find that REIT firms tend to dispose of distant properties and there is a negative relation between distance and cumulative abnormal returns (CARs, also known as cumulative prediction errors), consistent with managerial alignment hypothesis. Further, informational and social factors explain corporate decisions on asset sell-offs and the effect of social interactions only exists in less-populated areas. Together, these findings suggest a dominant role of managerial alignment effect.

In the second essay, we analyze cross-state/MSA spillover effects of local capital scarcity. We propose a theoretical framework to capture the competition for scarce capital across state/MSA borders and calibrate its implications with spatial autoregressive (SAR) and spatial Durbin’s (SDM) models. Our application of spatial econometrics tools mitigates potential bias in estimation that arises due to the violation of Stable Unit Treatment Value Assumption (SUTVA), which leads to indirect treatment effect (competition effect) on geographic neighbors. Overall, our findings suggest that negative spatial spillovers may arise due to competition for scarce capital, and the competition effect is amplified during local and national economic downturns.

In the third essay, we introduce geographic variables and implement a novel econometric method. We test the hypothesis that geographic (state-level) macroeconomic factors and funding liquidity affect market liquidity. We find cross-state spillover effects for market liquidity. These spatial spillover effects have two implications. First, higher REIT market liquidity in neighboring states leads to decreased REIT market liquidity in a particular state. Second, there is also a spatial multiplier effect (less than 1) that diminishes the magnitudes of the total effect of state macroeconomic effects on funding liquidity. These results indicate that neighboring states compete for scarce capital, leading to negative effects on the growth trajectories across state borders. Such negative effects are more extreme during market downturns.

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