Startups, relocation, and firm performance: a transaction cost economics perspective
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Startups, relocation, and firm performance: a transaction cost economics perspective In Hyeock (Ian) Lee
Accepted: 14 September 2020 # Springer Science+Business Media, LLC, part of Springer Nature 2020
Abstract Built on a transaction cost economics (TCE) perspective, this study investigates whether startups’ early growth prompts them to relocate to a new place, and, if so, how long-distance versus short-distance choices affect their post-relocation performance in the market. The empirical findings using 4928 US startups from the Kauffman Firm Survey dataset are three-fold. First, startups are more likely to move as they grow in the developmental process of entrepreneurship. Second, startups realize higher levels of performance in terms of firm survival and sales growth only through transaction cost-minimizing intra-state relocation, not through interstate relocation. Third, the superior performance of intra-state relocation of startups seems to be mitigated when they conduct location-independent businesses using Internet-based on-line transactions. The study concludes with managerial and public policy implications from these empirical findings.
Keywords Entrepreneurship . Early growth . Relocation strategies . Intra-state relocation . Inter-state relocation . Firm performance . US startups
JEL classification M13 . L25 . C18 . L26
I.H. (*)(*) I. H.Lee (. Lee Management Department, Quinlan School of Business, Loyola University Chicago, 16 E. Pearson Street, Chicago, IL 60611, USA e-mail: [email protected]
1 Introduction Entrepreneurship is a process of discovering and exploiting new business opportunities (Shane and Venkataraman 2000) that result in the creation and development of a new firm or startup (Aldrich 2010). Startups usually face limited internal resources because they are small in size and young in age (Aldrich and Auster 1986; Katz and Gartner 1988). To overcome these liabilities, they commonly depend on outside resource providers (e.g., venture capitalists, research universities, public R&D centers, market analysts, local governments, etc.) to help them develop their innovative ideas and business plans (Cooper 2003). These external resource providers often cluster around prospective entrepreneurs in proximate geographic regions (Porter 2000). As such, the spatial entrepreneurship literature characterizes the process of new firm creation and development as highly location-dependent (Acs 2006). The issue of optimal location choices by startups has been one of the most critical yet difficult strategic decisions for entrepreneurs, primarily because the location choice is essentially irreversible, at least in the short run, or may be very costly to change in the long run because the location choice is accompanied by huge investments of scarce tangible and intangible assets (Figueiredo et al. 2002; Knoben and Oerlemans 2008). In addition, once settled in the chosen location, startups become embedded in the initial location by building sticky network relationships with diverse local partners (e.g., upstream s
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