Does Cluster Membership Enhance Financial Performance?

William Ruland

Baruch College, The City University of New York (CUNY), New York, USA..

DOI: 10.4236/ib.2013.51001                

Abstract

This paper reports upon the profitability of firms that locate their headquarters in same-industry geographic concentrations or clusters and those that opt to maintain headquarters in other locations. While the preponderance of the theoretical and descriptive literature emphasizes the potential benefits associated with clustering, some papers suggest that clustering should not be beneficial, at least for particular types of firms in particular circumstances. This empirical study, which examines a sample of more than 4000 Compustat firms from 86 different industries, compares the profitability of firms in industry clusters and firms in other locations. The sample is partitioned into small and large firms to account for expected differences in profitability, in general, and the possible differential impact of geographic clustering. The results show that for smaller firms, the profitability of cluster members tends to be considerably lower than for firms that opt not to join clusters. For the subsample of larger firms, the results are mixed depending upon the measure of profitability. The results imply that smaller firms should carefully evaluate the decision to locate in industry clusters.

Keywords

Industry Clusters; Financial Performance

Conflicts of Interest

The authors declare no conflicts of interest.

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