A Portrait of Maryland’s Public Companies

I don’t always toot my horn, at least not in real time.  Over the last four months, I won two awards.  I received third place in the Society of Actuaries contest on risk control at the US Government for my piece, Who Dares Oppose a Boom?

The $100 prize is not worth as much as placing among the best.  Personally, I think the actuarial profession has a lot to teach the US Government.  If nothing else, we have to think long-term, and be conservative in the economic sense.

But I won first prize with the Baltimore CFA Society for my piece “A Portrait of Maryland’s Public Companies.”  What’s that you say, you have never seen that at the blog?  True enough, and I encourage you to read the other good essays in the 2011 Baltimore Business Review.

This essay derives from the same data that I used to do my incomplete miniseries The Economic Geography of Publicly-Traded Companies in the United States by Sector, and part two.

Anyway, here is my essay, with my graphs.

A Portrait of Maryland’s Public Companies

In studying where publicly-traded are located, the unevenness of their distribution is striking.  Why does a certain firm choose to headquarter in a specific place, and not another?  Why do industries tend to cluster in certain cities, counties, and states?  Does it happen because of public policy choices, or by historical accidents?  It turns out that both are involved, and I will explan why, using Maryland as my example.

When you think of states whose publicly-traded financial firms dominate their economy, one might think of New York, Connecticut, Massachusetts, or North Carolina.  But what if you heard that among publicly traded companies, the dominant sector of industry in Maryland was financials?  Surprised me too.  Consider this graph:


Source: Bloomberg, calculations by the author

As sectors go, Maryland is pretty normal with respect to Communications, Consumer Cyclicals, Consumer Noncyclicals, Diversified, and Utilities.  It is higher than the US average in Financial and Industrial companies, and lower than the US in Basic Materials, Energy, and Technology companies.

But even with those differences, the mix of sectors for Maryland is pretty ordinary.  Maryland is the fourth most similar compared to the rest the states and DC, as measured by the sum of squared differences of the state sector weights versus the US average sector weights.  Most states lack representation in 4 or more sectors; Maryland has companies in 8 out of 10 sectors, with weights near the US average.


Source: Bloomberg, calculations by the author

Public Companies in Maryland by County

Variation in the sector mix of publicly traded businesses is across states is the rule.  But it is also true within states.  Start by considering in what Maryland counties the publicly-traded companies reside.


Sources: Bloomberg, Google Maps, calculations by the author

I was surprised by the amount of companies residing in Montgomery County.  Their lead over other Maryland counties is still substantial when considered as a proportion of population, or county GDP.



Sources: Bloomberg, Google Maps, Census Bureau, calculations by the author

The “Market Capitalization/GDP” table is just another example of how size matters in business.  In general, populous areas, and areas with high GDP per capita tend to have more public corporations.  But none of this fully explains why Montgomery County has more public companies than the rest of Maryland.  Before I try to answer that, let me run through some more details on the sector mix of the publicly traded companies for the major counties.

Montgomery Industry Detail


Source: Bloomberg, calculations by the author

Montgomery County’s business areas are concentrated in these places (percentage of Maryland market capitalization): Bethesda (44.3%), Rockville (11.2%), and Silver Spring (10.1%).  Business is diverse by sector, with Financial and Industrial companies leading the way.  Many of the financial companies are real estate investment trusts, with the two largest being Host Hotels & Resorts, and Federal Realty Investment Trust.  There is one major industrial company, and given the proximity to DC, it is none other than Lockheed Martin, the defense giant.

In Consumer Noncyclicals, almost all of the companies are in healthcare, with a concentration in biotechnology.  The three largest companies are Human Genome Sciences (Biotech), Coventry Health Care (HMO), and United Therapeutics (Biotech).  There are two major hotels that comprise almost the entire Consumer Cyclicals sector: Marriott International, and Choice Hotels.  Finally, in the Communications sector most of the market capitalization comes from Discovery Communications, producer of the eponymous Discovery Channel, and other cable TV content.

Baltimore City Industry Detail


Source: Bloomberg, calculations by the author

Asset management contributes most of the public market capitalization for companies in Baltimore City, led by T. Rowe Price and Legg Mason. T. Rowe Price has roughly half of the total public market capitalization in Baltimore City.  Baltimore City has the only publicly traded utility domiciled in Maryland, Constellation Energy, the parent company of Baltimore Gas and Electric.  Finally, the company in the Consumer Cyclicals sector is Under Armour, which was started by two University of Maryland athletes.

Howard County Industry Detail


Source: Bloomberg, calculations by the author

When one talks of publicly traded businesses in Howard County, they are largely found in just one city, Columbia.  In the technology sector, they have one large company, Micros Systems, which makes hotel, restaurant and specialty retail information systems.  It has one large financial company, Corporate Office Properties Trust, which is a REIT.  Maryland’s only basic materials company is the specialty chemicals maker W.R. Grace, which not only survived asbestos-related claims, but grew profitably during the ordeal, rewarding patient shareholders.  In consumer non-cyclical, there is the well-known radio/media information company, Arbitron, and a biotech company, Martek Biosciences, which uses microbes to produce nutritional products.  In the communications sector, there is Sourcefire, a cybersecurity firm.  Given all of the security firms employed by the US Government in the area, it is no surprise to find a public company among them.

Baltimore County Industry Detail


Source: Bloomberg, calculations by the author

In Consumer Noncyclicals, Baltimore County has McCormick located in Sparks, a place otherwise obscure, about eight miles north of Towson.  There is also Medifast in Owings Mills, which makes weight-loss supplements.  The Financial company is Omega Healthcare, which is a healthcare REIT in Hunt Valley, wherein also resides the television broadcaster Sinclair Broadcasting.

Other Counties

  • In Anne Arundel County there is Ciena, the networking hardware and software company in the Communications sector, in Linthicum.
  • In Carroll County the Consumer Cyclical company Jos. A Bank, which makes fine clothing for men, resides in Hampstead, which is 9 miles east of Westminster.
  • In Prince George’s County there is one Communications sector company, Vocus, a public relations software company in Lanham, and three tiny financials.
  • In the remaining counties there are only financials thereafter: 10 small banks and S&Ls spread across the remaining 7 counties, with less market cap in aggregate than Prince George’s county.

Why does Montgomery County Dominate Publicly-Traded Market Capitalization in Maryland?

Why does Montgomery County, which does not have that much more population than Prince George’s County or Baltimore City, have more publicly traded businesses?  Why does Montgomery County have a disproportionately higher amount of publicly traded businesses than Baltimore County or Prince George’s County, which are the next highest in county GDP?

One potential answer is that Montgomery County has a superior business culture.  They have very educated people in their county, and they are near to DC, which employs a lot of technically skilled people.  The more demanding companies/jobs are on the northwest side of DC, not the northeast side.

After reviewing the county websites, I concluded that relative to Prince George’s County and Baltimore City, Montgomery County has made more of a concerted effort to attract business by offering tax and other incentives. Baltimore City and Prince George’s County have focused more on making business fair for minorities and small businesses.  Let the County Executives take note: in this day and age, if a county doesn’t create a friendly environment for larger publicly traded companies, they will go elsewhere.

Why does Maryland have the Mix of Publicly-Traded Businesses that it does?

Maryland has always been a favored home for REITs.  That dates back to 1963, when Maryland was the first state to pass a law for REITs, which afforded them substantial governance protections versus a Delaware C corporation.  A plurality of REITs organized in Maryland, and a surprising number of REITs domicile in Maryland.  By number, Maryland has 6.5% of all of the publicly traded REITs in the US, and by Market Cap, Maryland has 7.8%. So it should be no surprise that the financial sector in Maryland has a lot of REITs.  (For comparison purposes, remember that Maryland has 1.1% of the publicly traded market capitalization, and 1.9% of the GDP of the US.)

Let the politicians take note here.  Being business-friendly with REITs has helped Maryland, particularly Montgomery County [NHO4] .  It would help the economy of Maryland to be business-friendly to other industries, because not all of the state is next to DC, where the growth of government supports the economy.

Most of the financial sector after REITs in Maryland is asset managers, of which there are two well known companies, T. Rowe Price and Legg Mason, which grew up on opposite sides of Light Street in Baltimore City. Though the growth of T. Rowe Price has been greater, both firms have been well-run, and grown dramatically over the past 40 years.  Call it a historical accident that both firms grew up in Baltimore.

That summarizes Financials. If I had looked at Baltimore 15 years ago, for banks I would have listed Mercantile Bankshares, First Bank of Maryland, or Provident Bank of Maryland.  I would have mentioned USF&G among insurers.  But in an era of increasing financial concentration, and misregulation that does not penalize size, many locations lose their hometown businesses to larger companies through mergers and acquisitions.  Once an industry loses a foothold in an area, the jobs in that industry tend to travel to areas that have a greater concentration of the industry.  Let policymakers take note: it is difficult to rebuild a base of jobs in a given industry as companies leave.  Thus, design policy to make it attractive for acquirers to move to your state, rather than remove businesses from your state.

With Hotels, J. Willard Marriott came to DC in 1927, and began what would be a thriving business.  Out of that sprang Marriott International and the REIT Host Hotels and Resorts.  Choice Hotels has been in Maryland since its beginnings back in 1939.  But when there is a concentration of firms in an industry geographically, it attracts smaller players who benefit from the pool of talent locally, which helps explain why there are three more Hotel REITs in Maryland, namely, LaSalle, Diamondrock and Pebblebrook.  68% of the Market Cap of Hotel REITs is based in Maryland, with four of the top six firms nationally.

The same argument can be applied to Biotech.  Many early biotech companies began in Maryland, such as Human Genome Sciences, and Medimmune, which is now a subsidiary of Astra-Zeneca.  Part of the reason for that early location is that the National Institutes of Health and Johns Hopkins helped to seed that pool of talent.  Now the broader pool of talent attracts other private and public biotechnology companies.  Maryland ranks fourth behind California, Massachusetts and New Jersey in the Market Cap of publicly traded companies.

Constellation Energy is the only Maryland-domiciled utility.  Formerly constrained by geography and state regulations, the Utility industry is becoming more of a regional affair.  Constellation was almost acquired by Berkshire Hathaway; who knows how long it will remain a Maryland-domiciled firm?

In Industrials, Lockheed Martin is a dominant company in defense.  After the Lockheed merger with Martin Marietta, it moved to Bethesda, probably because their largest customer, the US Government, was nearby in DC.  Call it a historical accident that Martin Marietta was based in Bethesda, but Maryland benefits from that accident, much as it got hurt by Black and Decker being bought by Stanley Works.

Two firms that can be traced to their founders regional ties are Discovery Communications and McCormick.  The founders both were Maryland residents, and started the firms here.  (Note: McCormick moved to Maine for twelve years 1903-1915, and then returned to Baltimore.)

Parting Thoughts

Maryland’s pro-business policies with respect to REITs have benefited the state, and Montgomery County particularly. Maryland could do better with other industries in attracting and retaining corporations.  It would not be difficult to see the few remaining large public financial companies in Maryland move elsewhere if they were acquired.  After all, financial work can be done anywhere, and acquisitions in that sector are frequent.  The loss of jobs and diminution of the talent pool would prove to be a drag on state tax revenues, and on the revenues of Baltimore City particularly.  Policymakers should actively consider what they can do to make Maryland a preferred habitat for businesses to dwell in.

Pro-business policies can attract and retain firms in a state, but a lot of what causes firms to be there is the historical accident that the founder started it there, and the costs of moving keep it there until it dies, pays the cost of moving, or is acquired.

Longer-lasting sets of firms in an industry can be a magnet for further development of companies in that industry, given the depth of the talent pool.  This is a subset of why businesses reside in a given area, in that the culture of the area supports business through both government policy and talent.  For those reasons, Montgomery County has the lion’s share of publicly traded businesses in Maryland.