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Financial Structure, Acquisition Opportunities, and Firm Locations


  • Andres Almazan is from the University of Texas. Adolfo de Motta is from McGill University. Sheridan Titman is from the University of Texas and the National Bureau of Economic Research. Vahap Uysal is from the University of Oklahoma. We would like to thank for helpful comments: Alberto Abadie, Jason Abrevaya, Aydogan Alti, Matthias Buhlmaier, Louis Ederington, Chitru Fernando, Lorenzo Garlappi, Charles Hadlock, Campbell Harvey (the Editor), Simi Kedia, Scott Lynn, Bill Megginson, Gordon Phillips, Roberto Rigobon, Pradeep Yadav, an anonymous associate editor, an anonymous referee, and seminar participants at Baylor University, Boston College, Brigham Young University, UC-Irvine, Columbia University, Drexel University, Fundacion Rafael del Pino, Princeton University, Rutgers University, Texas Christian University, Universidad Carlos III, University of Essex, University of Michigan, University of Oklahoma, University of Southern California, UT-Dallas, UT-Austin,Vienna Graduate School of Finance, WFA-Hawaii, and York University. Adolfo de Motta thanks IFM2 for its financial support.


This paper investigates the relation between firms' locations and their corporate finance decisions. We develop a model where being located within an industry cluster increases opportunities to make acquisitions, and to facilitate those acquisitions, firms within clusters maintain more financial slack. Consistent with our model we find that firms located within industry clusters make more acquisitions, and have lower debt ratios and larger cash balances than their industry peers located outside clusters. We also document that firms in high-tech cities and growing cities maintain more financial slack. Overall, the evidence suggests that growth opportunities influence firms' financial decisions.