Investment in a Smaller World: The Implications of Air Travel for Investors and Firms | Zendy

Zhi Da | Zendy; Umit G. Gurun | Zendy; Bin Li | Zendy; Mitch Warachka | Zendy

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Investment in a Smaller World: The Implications of Air Travel for Investors and Firms

Author(s) -

Zhi Da,

Umit G. Gurun,

Bin Li,

Mitch Warachka

Publication year - 2019

Publication title -

management science

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.954

H-Index - 255

eISSN - 1526-5501

pISSN - 0025-1909

DOI - 10.1287/mnsc.2019.3452

Subject(s) - air transport , diversification (marketing strategy) , equity (law) , business , destinations , finance , air travel , investment (military) , monetary economics , aviation , financial economics , economics , industrial organization , tourism , transport engineering , marketing , geography , archaeology , aerospace engineering , politics , law , political science , engineering

Air travel has made the world smaller. Besides reducing local investment bias, variation in air traffic reshuffles the investor base of firms. Air traffic also facilitates corporate acquisitions of distant target firms. We confirm these investor-level implications using exogenous variation in air traffic induced by air hub openings. Furthermore, an increase in air passengers at a destination broadens the investor base of small nearby firms, and lowers their cost of equity. We confirm these firm-level implications using variation in air traffic induced by air hub openings. Overall, air travel improves the geographic diversification of investor portfolios and lowers the cost of equity for firms.

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