Location, location, location. It's the golden rule of real estate, and now it has gained a little more meaning in the wider business world. According to a recent studycompanies in cities with higher levels of happiness invest more capital and spend more on research and development.

Previous research has found happy employees are more creative, more productive and take prudent risks. In a Harvard Business Review, senior associate editor Walter Frick writes that the new study, conducted by Tuugi Chuluun of Loyola University Maryland and Carol Graham of the Brookings Institution, takes it a step further by revealing that happy cities are linked to an overall culture of planning and investment in the future. 

Chuluun and Graham compared a Gallup poll that measured U.S. cities' average happiness with their publicly traded companies' investment portfolios. They found that "sentiment, mood, and subjective well-being indeed influence economic behavior" of businesses.

"The well-being literature suggests that not only do things like better health and jobs make people happier, but that happier people are also more likely to be healthy and to make investments in the labor market and in their own futures. We see that it extends to corporate decision-making," Chuluun and Graham write in the study

While there are other factors that may have impacted the results, the duo's findings are compelling. Another finding of note is that younger companies spend the most on future investments and R&D, though that also may be due to the fact that younger companies take bigger risks and make more decisions based on emotions than older firms.

Cities where the population's standard of well-being is lower--which includes factors such as lower salaries, obesity, smoking, and lower rates of exercise--invest less in the future. The takeaway, Chuluun and Graham say, is self awareness. If you know your location's impact on your business decisions, you can plan smarter.

"While we cannot fully resolve these questions, it is our hope that by showing that firms (and particular kinds of firms) located in happier places are more likely to invest, our findings pique some interest in the extent to which well-being and its distribution can inform and influence business decisions," Chuluun and Graham write.

Published on: Jun 11, 2015