The Stock Market Tips

Abstract

We investigate the influence of public companies on their local economies through the spending of their employees on local goods and services. Using the taxicab industry in New York City as a laboratory, we find that tips paid for taxis taken near firms’ headquarters are higher on the days their stock returns are higher. This finding is stronger for firms offering greater stock-based compensation, and tipping also increases following the initial public offerings (IPOs) of firms particularly at the end of the IPO lock-up period. Idiosyncratic stock returns are more strongly associated with tipping than are aggregate stock market returns, suggesting that the increase in tipping with stock returns is due to firm-level factors. The number of taxis taken near firms’ headquarters, too, increases with their stock returns. Additional tests suggest that these findings are non-spurious.