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Soft Information and Investment: Evidence from Plant-Level Data

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October 2010

Written by: Xavier Giroud

Working Paper Number:

CES-10-38R

Abstract

A reduction in travel time between headquarters and plants makes it easier for headquarters to monitor plants and gather 'soft' information--i.e., information that cannot be transmitted through non-personal means. Using a difference-in-differences methodology, I find that the introduction of new airline routes that reduce the travel time between headquarters and plants leads to an increase in plant-level investment of 8% to 9% and an increase in plants' total factor productivity of 1.3% to 1.4%. Consistent with the notion that a reduction in travel time makes it easier for headquarters to monitor plants and gather soft information, I find that my results are stronger: i) for plants whose headquarters are more time constrained; ii) for plants operating in soft-information industries; iii) during the earlier years of my sample period, when alternative, non-personal, means of monitoring and transmitting information were less developed; iv) for plants where information uncertainty is likely to be greater and soft information is likely to be more valuable, such as smaller plants and peripheral plants operating in industries that are not the firm's main industry.

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production, econometric, industrial, company, technology, manager, organizational, corporate, produce, productivity measures, expenditure, plant investment, management, plant productivity, productivity plants, plants industry, plant, manufacturing plants, warehouse

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Metropolitan Statistical Area, Census of Manufactures, Annual Survey of Manufactures, Standard Statistical Establishment List, Standard Industrial Classification, Ordinary Least Squares, Total Factor Productivity, Cobb-Douglas, Bureau of Economic Analysis, Longitudinal Business Database, Auxiliary Establishment Survey, Chicago Census Research Data Center, Census of Manufacturing Firms, New York University, North American Industry Classification System, Business Register, Special Sworn Status, North American Industry Classi

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