Are investment decisions of firms influenced by local happiness? Evidence from Germany

Abstract

This thesis investigates the relationship between local happiness and firm investment decisions in Germany for the period 2000 to2015. Investments in capital and research and development (R&D) are hypothesized to be effected by the sentimental setting of decision makers due to their inherent risk and long-term characteristics. The analysis finds no evidence that capital expenditures are correlated with local happiness. On the other hand, there is weak evidence supporting that especially younger firms are effected by local happiness. The relationship is however not linear but concave suggesting that a higher local happiness has a positive effect on R&D expenditures but only up to a critical point. Furthermore, the analysis examines the effect of local happiness inequality and finds no relationship with capital expenditures. In contrast, R&D expenditures, especially of younger firms, are found to be affected by the dispersion in happiness. Again, a concave relationship is found which is possibly explained by the “tunnel effect” hypothesis.