Corporate Flight from Uncertainty and Business Dynamism

54 Pages Posted: 6 Jun 2024 Last revised: 28 Feb 2025

See all articles by Mircea Epure

Mircea Epure

Universitat Pompeu Fabra (UPF) - Department of Economics and Business; Barcelona School of Economics; UPF Barcelona School of Management

Feng Zhou

Toulouse Business School

Date Written: February 28, 2025

Abstract

We examine the impact of corporate headquarters relocations prompted by institutional uncertainty on business dynamism. We show that firms relocating their headquarters due to the 2017 Catalan independence referendum accounted for a quarter of the total assets in the region. New firm entry rates declined in the region after the referendum, and new ventures exhibited lower growth in total assets, sales, and employment. Notably, within the region, new business entry rates declined less in the areas from which large firms relocated, suggesting fewer occupational opportunities. However, the growth of these new businesses was even lower. These results are stronger in industries with lower market concentration (indicating lower entry barriers), in non-manufacturing activities (requiring lower initial investment in fixed assets), and in the areas from which more internationally oriented large firms relocated. Regional shifts in entrepreneurs' characteristics support our conjecture that new businesses entered due to necessity rather than opportunity. Finally, we show that firms relocating their headquarters maintained a distinct, market behavior and outperformed over the business cycle. Collectively, our findings reveal how institutional uncertainty and headquarters relocations reshape regional business landscapes and entrepreneurial dynamics.

Keywords: business dynamism, entrepreneurship, institutional uncertainty, corporate headquarters

JEL Classification: G34, M1, M13

Suggested Citation

Epure, Mircea and Zhou, Feng, Corporate Flight from Uncertainty and Business Dynamism (February 28, 2025). Available at SSRN: https://ssrn.com/abstract=4855231 or http://dx.doi.org/10.2139/ssrn.4855231

Mircea Epure (Contact Author)

Universitat Pompeu Fabra (UPF) - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://mirceaepure.com

Barcelona School of Economics ( email )

Carrer de Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain

UPF Barcelona School of Management ( email )

Carrer de Balmes, 132, 134
Barcelona, 08008
Spain

Feng Zhou

Toulouse Business School

20, Bd Lascrosses
Toulouse, 31000
France

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