TITLE:
Does Cluster Membership Enhance Financial Performance?
AUTHORS:
William Ruland
KEYWORDS:
Industry Clusters; Financial Performance
JOURNAL NAME:
iBusiness,
Vol.5 No.1,
March
25,
2013
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.