Urban vibrancy, human capital and firm valuation in China

Purpose: This paper intends to study how geographic heterogeneity in urban vibrancy, especially in human capital creation, helps explain persist firm valuation dispersion across cities in China. Design/methodology/approach: This paper studies geographic differences in firm valuations of 1,023 listed companies headquartered in 35 major cities in China from 2001 to 2018. The authors estimate panel regressions of local firm Tobin's q on city fixed effects or city endowed attributes in human capital creation after controlling industry-year fixed effects as well as a set of firm and city time variant attributes. Findings: The results show persistent, significant city-to-city differences in Tobin's q, especially among large, mature or high labor-intensive firms. To explain such geographic differences in firm valuations, the authors identify several factors of the endowed city competitive advantages in creating human capital that play important roles in explaining the persistent geographic firm valuation premia. Originality/value: This paper provides the first systematic analysis of urban vibrancy in human capital supply in explaining persistent geographic firm valuation dispersion in China. The evidence suggests that city endowed comparative advantages in supplying human capital have created long-lasting, and growing, shareholder wealth by attracting and retaining talents and human resources in local firms.