Does Intergenerational Mobility Increase Corporate Profits?

Albertus, James F.; Smolyansky, Michael

doi:10.17016/FEDS.2019.081

Working Paper

Does Intergenerational Mobility Increase Corporate Profits?

Abstract: We find that firms located in areas with higher intergenerational mobility are more profitable. Building off the work of Chetty and Hendren (2018a and 2018b)?who provide measures of intergenerational mobility for all commuting zones (essentially, metropolitan areas) within the U.S.?we are the first to show the positive association between intergenerational mobility and corporate profitability. Our regressions compare firms in the same industry at the same point in time and fully control for time-varying state-level shocks. As such, our findings cannot be explained by either differences in industry composition across localities or by variation in state-level economic conditions; nor can our results be explained by differences in firm characteristics or by local economic conditions. Rather, we argue that our findings are best explained by intergenerational mobility influencing human capital formation. Areas with higher mobility do a better job in unlocking their residents? innate talents, which in turn is associated with improved performance by locally headquartered firms. In essence, our results uncover a positive link between greater equality of opportunity and increased corporate profitability.

Keywords: Intergenerational mobility; Corporate profitability; Human capital;

JEL Classification: G30; G32; J24; J62; R10;

https://doi.org/10.17016/FEDS.2019.081