Non-pecuniary Benefits: Evidence from the Location of Private Company Sales

Abstract

This paper investigates whether acquisition prices reflect a specific set of non-pecuniary benefits preferred by entrepreneurs: the quality of life (QOL) associated with the business location. Using data on private firm acquisitions, we find that target firms in high-QOL cities sell for a 14 to 20% premium. Traditional financial factors do not explain this premium and it dissipates when the buyer is unlikely to have preferences for high-QOL locations. Using wage-to-housing cost differentials to decompose local amenities and data on migration patterns, we find that QOL amenities have a greater impact on entrepreneurs' location decisions relative to wage workers.

Keywords: Private Equity, Valuation, Geography, Amenities, Entrepreneurship

JEL Classification: G02, G32, G34, J32, L26, R39