Startups, relocation, and firm performance: a transaction cost economics perspective

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 inter-state 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.