Stay Concentrated to Survive
48 Pages Posted: 7 Jun 2019
Date Written: April 26, 2019
Using a text-based measure as proxy for a firm’s geographically dispersed business interests, we document that geographic dispersion increases the probability of failure risk for newly listed firms. We find that the effect is more pronounced in a soft information environment where information is not easily transferrable or verifiable over long distances, and in small communities where managerial social concerns dominate in decision-making. Moreover, we find that firms with spatially distributed business interests are negatively associated with post-IPO operating performance. Overall, the results are consistent with the argument that geographically dispersed firms are subject to internal information asymmetry and divert managerial focus away from shareholder value, which negatively affects corporate performance and eventually results in corporate failure. Our study suggests to the corporate world, stay concentrated to survive.
Keywords: initial public offerings (IPOs); firm survival; geographic dispersion; firm location
JEL Classification: G10; G33; R30
Suggested Citation: Suggested Citation