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

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  • Arturs Kalnins
  • Francine Lafontaine

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.

Suggested Citation

  • Arturs Kalnins & Francine Lafontaine, 2013. "Too Far Away? The Effect of Distance to Headquarters on Business Establishment Performance," American Economic Journal: Microeconomics, American Economic Association, vol. 5(3), pages 157-179, August.
  • Handle: RePEc:aea:aejmic:v:5:y:2013:i:3:p:157-79
    Note: DOI: 10.1257/mic.5.3.157
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    More about this item

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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