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American Economic Journal: Microeconomics: Vol. 5 No. 3 (August 2013)

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Too Far Away? The Effect of Distance to Headquarters on Business Establishment Performance

Article Citation

Kalnins, Arturs, and Francine Lafontaine. 2013. "Too Far Away? The Effect of Distance to Headquarters on Business Establishment Performance." American Economic Journal: Microeconomics, 5(3): 157-79.

DOI: 10.1257/mic.5.3.157

Abstract

In the population of over 1.7 million Texan sales-tax collecting business establishments, we show that greater distance to owner headquarters is associated with shorter establishment longevity. For the lodging industry, where we have revenue data, increases in distance to headquarters due to HQ-moving owners or acquisitions are associated with reductions in revenues per room. We argue that this detrimental distance effect is robust and causal, arising even when we control for the potential endogeneity of HQ distance using instrumental variable and matched pair analyses. We interpret this as evidence of monitoring and local information asymmetry problems for distant owners.

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Download Data Set (144.59 MB) | Online Appendix (118.75 KB) | Author Disclosure Statement(s) (231.22 KB)

Authors

Kalnins, Arturs (Cornell U)
Lafontaine, Francine (U MI)

JEL Classifications

D82: Asymmetric and Private Information; Mechanism Design
G34: Mergers; Acquisitions; Restructuring; Voting; Proxy Contests; Corporate Governance
L25: Firm Performance: Size, Diversification, and Scope
R32: Other Production and Pricing Analysis

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