Many company headquarters are located in capital cities

"Capital Gains: The Returns to Locating in the Capital City". A seminar presented by Jörg Stahl.

Jörg Stahl has a PhD in Economics and is the assistant professor at the University Pompeu Fabra in Barcelona, Spain. His research interests are Corporate Finance, Regional and Urban Economics, Political Economy, and Economic History.

In this frame of his research activities he gave a seminar on a paper he wrote, titled “Capital Gains: The Returns to Locating in the Capital City”.

He developed the idea that in a number of countries, many companies locate their headquarters in the capital city. He postulated that geographic proximity to a country's leading politicians may be beneficial for a number of reasons, including greater opportunities to influence policy makers. Since neither firms nor capital cities move randomly, the effects of firms' co-locating with the government are normally hard to identify. In this paper, he solved this problem by examining a unique event - the relocation of the German Federal Government from Bonn to Berlin in 1991. Following reunification, there was a free vote in the German parliament. Berlin won by a narrow margin, an event that could not have been anticipated even a few days before. Prof Stahl then examined the value of being co-located within the same city as the government by analysing stock returns. He found that firms with operational headquarters in Berlin experienced mean cumulative abnormal returns of about 3 percent within the two days following the relocation decision. These returns were even higher two weeks later, do not appear to be driven by industry composition, and are robust to different model specifications.