Essays on Strategy, Geography, and Firm Performance

Abstract

Corporate strategy --- what activities a firm performs --- and location strategy --- where it performs them --- have mostly been studied separately. However, geographic proximity enables the exchange of goods, workers, and knowledge --- precisely the types of resource flows that also motivate internalizing activities inside firm boundaries. This dissertation presents three essays that explore the interdependence of corporate- and location strategy and its implications for location choice and firm performance. Chapter 1 studies the effects of geographic proximity between firms in the same industry on their survival. While in theory, co-location can enhance firm productivity, the existing empirical evidence is mixed. In this paper, I argue that proximity between firms affects their performance differently depending on whether they compete locally or in broader national markets. Using road upgrades in the context of Brazil as an exogenous shock to proximity between incumbent firms, I find that in locally traded industries, greater proximity leads to increased exit of the smallest firms and higher survival rates of the largest --- effects that are consistent with increased competition. Meanwhile in nationally traded industries, firms of all sizes see improved survival rates, consistent with increased agglomeration spillovers. The results shed light on contradictory findings in the literature and show how investments in transportation infrastructure, such as roads, intensify both competition and agglomeration forces. In contrast to the focus on stand-alone firms in Chapter 1, Chapter 2 studies the spatial organization of complex, multibusiness firms. While prior research has focused on how firms co-locate with others, here we focus on the geographic proximity between the different units of the firm itself. We propose and test the hypothesis that multibusiness firms exhibit ``internal agglomeration” --- a systematic co-location of their different plants --- and that this is driven by the desire to share resources within the firm. Using data on the location and corporate structure of a large sample of U.S. manufacturing firms, we find that internal agglomeration exists and is primarily related to the sharing of labor. The findings suggest that internal labor markets are potentially an important source of competitive advantage in multibusiness firms. Building on the findings of Chapter 2, Chapter 3 studies the extent and drivers of internal labor markets in multibusiness firms directly. Using a large sample of multi-business firms from Brazil and a rich employer-employee matched dataset, we track all internal worker movements across the firms' units. We find that multibusiness firms redeploy a large share of their workers internally, especially managers and workers with more firm-specific experience. Redeployed workers earn a large wage premium over otherwise comparable workers hired though external labor markets. Geographic proximity and resource relatedness between the firms’ plants facilitate redeployment. In contrast to prevailing views of internal labor markets as a means to avoid external labor market frictions, our findings are consistent with internal labor markets as conduits of knowledge. Taken together, the three chapters of the dissertation provide evidence that strategic decisions around a firm's product- and geographic boundaries are intimately related, and that resource sharing is implicated in both.