Shannon Roddel | December 19, 2019
Easy access to air travel has not only flattened the world, it also has flattened the bias toward investing locally, according to new research from the University of Notre Dame.
“Mobility of population is death to localism,” as stated in the study “Investment in a Smaller World: The Implications of Air Travel for Investors and Firms,” forthcoming in Management Science from Zhi Da, professor of finance in Notre Dame’s Mendoza College of Business. The paper is one of the first to quantify the impact of a “flattening world” on financial outcomes such as local investment bias and firm cost of capital.
“We find that investors in one location — say Austin, Texas — are more likely to invest in companies in a faraway location — for example, San Jose, California — when the two locations are better connected by air traffic,” Da says. “This investment reduces the risk for Austin investors since they now hold a more diversified portfolio. It also reduces the cost of capital for a San Jose company by approximately 1 percent, as its funding sources become more diverse.
“More broadly,” he explains, “our findings suggest that the mobility of the population and the resulting exchange of ideas and efficient capital flows are good for both the investors and the companies.”
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