“Corporate Flight from Uncertainty and Business Dynamism“

Authors: Mircea Epure (Universitat Pompeu Fabra) & Feng Zhou (Toulouse Business School)

The authors examine the impact of corporate headquarters relocations prompted by institutional uncertainty on business dynamism. They 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 their conjecture that new businesses entered due to necessity rather than opportunity.

Finally, the study shows that firms relocating their headquarters maintained a distinct, market behavior and outperformed over the business cycle. Collectively, their findings reveal how institutional uncertainty and headquarters relocations reshape regional business landscapes and entrepreneurial dynamics.