Geographic proximity and price efficiency: Evidence from high‐speed railway connections between firms and financial centers

We study how geographic proximity to financial centers affects price efficiency. Using high‐speed railway connections between firm cities and their nearest financial centers in China as exogenous shocks, we find stocks of connected firms are more efficiently priced than those of firms that are not c...

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Bibliographic Details
Published in:Financial management 2022-03, Vol.51 (1), p.117-141
Main Authors: Gao, Hao, Qu, Yuanyu, Shen, Tao
Format: Article
Language:English
Subjects:
Analysis
Companies
Economic aspects
Economic geography
Efficiency
Financial management
Financial market
Financial research
Geographic proximity
High speed trains
High‐speed railway
Industrial districts
Information acquisitions
Ownership
Price efficiency
Pricing
Proximity
Railroads
Sales
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Summary:We study how geographic proximity to financial centers affects price efficiency. Using high‐speed railway connections between firm cities and their nearest financial centers in China as exogenous shocks, we find stocks of connected firms are more efficiently priced than those of firms that are not connected. Consistent with our hypothesis, ease of travel has a stronger effect on firms that are closer to financial centers, smaller, have less institutional ownership and financial analyst coverage, and are not on the short sales list. Our paper highlights the importance of the geographic proximity of firms to financial centers on financial market efficiency.
ISSN:0046-3892
1755-053X
DOI:10.1111/fima.12354