Academic journal article The Journal of Real Estate Research

The Survival and Birth of Firms

Academic journal article The Journal of Real Estate Research

The Survival and Birth of Firms

Article excerpt

Abstract: Using a modified form of the location quotient, a "growth quotient," this study traces the survival and growth for the headquarters of publicly listed firms in the United States. At the county level, the spatial concentrations of headquarters listed in 1997 are correlated with the spatial concentrations of corporate headquarters that survived from 1986 though 1996. Counties that house the headquarters of many different survival firms continue to spawn new headquarters. Counties with headquarters of survival firms in only one or two industries tend to maintain and spawn firms in only those industries. These conclusions support the Porter thesis that firms will spatially cluster for competitive advantage.

Introduction

Corporations and real estate analysts often disagree on the future locations of corporate headquarters. The "believers of the virtual company," (Brydon, 1998)1 disperse office centers across nations and around the world like pearls on a string, while the "synergy subscribers" cluster headquarters of similar type firms (Porter, 1998).

This study traces the survival and birth of corporate headquarters for exchange listed firms in the United States from 1986 through 1997. The research questions are: (1) Do counties that house the headquarters of many different types of firms that survived over this period continue to spawn new headquarters in general? Does agglomeration still hold? and (2) Do counties with a contingent of headquarters of firms that survived in only one or two specialized industries spawn headquarters in those same industries to the exclusion of other industries?

This study uses a modified form of the location quotient, designated herein as the "growth quotient," in order to trace the spatial concentrations of headquarters.

Background

Since Schumpeter (1934) proposed that capitalism spawned waves of innovation and destruction, the theories about the location of new firm activity have focused on: (1) product life cycle development (Klepper, 1990); (2) the necessary infrastructure support and the minimization of labor costs and transportation for supplies and for delivery of goods to the market (Ihlanfeldt, 1990); and (3) competition among spatial duopolies (Anderson, 1992).

Much of the new thought about the decentralization of firms and industries has focused on the location of the production facilities (as opposed to the headquarters) that maximize the production function and minimize costs and access to markets. A recent study by Ellison and Gleaser (1997) suggested that locating plants might initially be viewed as throwing a dart at a map. However, after using a variant of the Herfandahl model to study the location of 459 plants within manufacturing four-digit standard industrial classification (SIC) industries, they concluded that geographic concentration is ubiquitous. They do not attempt to explain the why of concentration, other than to suggest natural advantages, competitive spillover, inertia and accidents of history.

As the economy in the United States evolves, the supply and transportation cost constraints are lifted and new factors determine where the economic activities of planning and production occur. This study relies on the assumptions that the location of new corporate headquarters, as opposed to the production facility, is a two-step process. First, the executives and entrepreneurs of the new firm search for a suitable and appropriate environment that not only includes the traditional infrastructure elements of transportation, taxes and labor, but also quality of life, educational support and a nurturing, diversified economic base. Sites are screened to meet the minimum thresholds. [The production function does not adjoin the headquarters. See Shilton and Stanley (1999) for a review of the transformation of the production function to a productivity function in which the location of the headquarters is not affected by the actual costs of production. …

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