Michael S. Dahl and Olav Sorenson

Entrepreneurs, even more than employees, tend to locate in regions in which they have deep roots. Here, we examine the performance implications of these choices. Whereas one might expect entrepreneurs with deep roots to perform better because of their richer endowments of social capital, they might also perform worse if their location choices rather reflect a preference for spending time with family and friends. We examine this question using comprehensive data on the Danish population. Entrepreneurs’ ventures perform better – survive longer and generate greater cash flows and cumulative profits – when they locate in regions in which they have deep roots (“home” regions). This effect appears substantial, similar in magnitude to the value of having prior experience in the industry entered (i.e. specific human capital).

Management Science, 58 (2012):1059-1071