Geographic Cluster Size and Firm Performance

Posted: 10 Nov 2009

See all articles by Timothy B. Folta

Timothy B. Folta

Purdue University - Krannert School of Management

Arnold C Cooper

affiliation not provided to SSRN

Yoon-Suk Baik

KAIST College of Business

Date Written: 2006

Abstract

This study clarifies the relationship betweengeographic cluster size and firm performance. Following a review of relevantliterature, several hypotheses are proposed. Data on 789 private and publicbiotechnology firms founded in the United States between 1973 and 1998 are usedto test the hypotheses. According to the data, economies of agglomeration(i.e., clusters) benefit firms in their ability to innovate through patentingand to attract alliance and private equity partners. At the same time, the marginal benefits of cluster size decline as clustersget large. This finding suggests that diseconomies of agglomeration may play animportant role when clusters exceed about 65 firms. The fact that firms aremore likely to fail as a cluster gets larger suggests that firms in largerclusters have different performance thresholds than firms in smaller clusters.(SAA)

Keywords: Private equity, Patents, Biotechnology industry, Cluster formation, Firm performance, Agglomeration economies, Initial public offerings (IPO)

Suggested Citation

Folta, Timothy B. and Cooper, Arnold C and Baik, Yoon-Suk, Geographic Cluster Size and Firm Performance (2006). Journal of Business Venturing, Vol. 21, Issue 2, p. 217-242 2006. Available at SSRN: https://ssrn.com/abstract=1503222

Timothy B. Folta (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States
765-494-9252 (Phone)

Arnold C Cooper

affiliation not provided to SSRN

No Address Available

Yoon-Suk Baik

KAIST College of Business ( email )

85 Hoegiro Dongdaemun-Gu
207-43 Chongryangri 2-dong Dongdaemoon-gu
Seoul 02455
Korea, Republic of (South Korea)
1 82 2 958 3545 (Phone)
1 82 2 958 3604 (Fax)

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