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The Influence of Location upon Profitability and Employment Change in Small Companies

Author

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  • M.G. Coombes

    (Centre for Urban and Regional Development Studies. University of Newcastle-upon-Tyne, Newcastle-upon-Tyne NEI 7RU, UK)

  • D.J. Storey

    (School of Industrial and Business Studies, University of Warwick)

  • R. Watson

    (Manchester School of Management, University of Manchester Institute of Science and Technology)

  • P. Wynarczyk

    (Centre for Urban and Regional Development Studies. University of Newcastle-upon-Tyne, Newcastle-upon-Tyne NEI 7RU, UK)

Abstract

This paper examines the hypothesis that firms located in large urban areas suffer from location diseconomies which significantly reduce their profitability and propensity to create employment. This hypothesis is tested on a sample of companies located within a single region, the north of England, over the period 1974-81. The empirical results suggest that neither trading profits nor employment change are significantly influenced by location. However, the amount taken out of the business in the form of directors' remuneration, which on average swallowed up 61.5 per cent of trading profits, is significantly negatively related to employment change. This suggests that, with respect to employment creation, public policy should focus on influencing the size of directors' remuneration rather than on directly increasing trading profits. Fiscal policies may not be effective in this context, however, with the result that significantly influencing the behaviour of small firm directors may be a policy role best fitted to pro-active local economic development agencies.

Suggested Citation

  • M.G. Coombes & D.J. Storey & R. Watson & P. Wynarczyk, 1991. "The Influence of Location upon Profitability and Employment Change in Small Companies," Urban Studies, Urban Studies Journal Limited, vol. 28(5), pages 723-734, October.
    • Handle: RePEc:sae:urbstu:v:28:y:1991:i:5:p:723-734
    DOI: 10.1080/00420989120080891
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    References listed on IDEAS

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    1. Rodney A. Erickson, 1987. "Business Climate Studies: A Critical Evaluation," Economic Development Quarterly, , vol. 1(1), pages 62-71, February.
    2. Balydon, R & Woods, A & Zafiris, N, 1984. "Inner City versus New Town: A Comparison of Manufacturing Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 46(1), pages 21-29, February.
    3. Watson, Robert, 1990. "Employment Change, Profits and Directors' Remuneration in Small and Closely-Held UK Companies," Scottish Journal of Political Economy, Scottish Economic Society, vol. 37(3), pages 259-274, August.
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    1. Bergner, Sören Martin & Bräutigam, Rainer & Evers, Maria Theresia & Spengel, Christoph, 2017. "The use of SME tax incentives in the European Union," ZEW Discussion Papers 17-006, ZEW - Leibniz Centre for European Economic Research.

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