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Agglomeration Effects and Financial Performance

Author

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  • Maarten Jennen

    (Department of Finance, Rotterdam School of Management, Erasmus University, Burg. Oudlaan 50, Rotterdam 3062 PA, The Netherlands, mjennen@rsm.nl)

  • Patrick Verwijmeren

    (Department of Finance, Faculty of Business and Economics, University of Melbourne, Parkville, Melbourne, Victoria 3010, Australia,. patrickv@unimelb.edu.au)

Abstract

This study empirically tests the trade-off between the costs and benefits of agglomeration for a large sample of firms. In line with the existing literature, it is found that population and employment density benefit productivity, but increase labour and real estate costs. To test the trade-off of benefits and drawbacks of agglomeration, the analysis focuses on the relation between agglomeration and profitability. For a sample of single-establishment Dutch firms, it is found that on average the costs of settling in an area with a dense spatial distribution of employment outweigh the benefits, an effect that holds for both urbanisation and localisation measures. In general, doubling the employment density will decrease the average return on assets by more than one percentage point.

Suggested Citation

  • Maarten Jennen & Patrick Verwijmeren, 2010. "Agglomeration Effects and Financial Performance," Urban Studies, Urban Studies Journal Limited, vol. 47(12), pages 2683-2703, November.
    • Handle: RePEc:sae:urbstu:v:47:y:2010:i:12:p:2683-2703
    DOI: 10.1177/0042098010363495
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    References listed on IDEAS

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    Cited by:

    1. Wahyu Widodo & Ruhul Salim & Harry Bloch, 2015. "The effects of agglomeration economies on technical efficiency of manufacturing firms: evidence from Indonesia," Applied Economics, Taylor & Francis Journals, vol. 47(31), pages 3258-3275, July.
    2. Xiaoying Li & Yin-Fang Zhang & Laixiang Sun, 2018. "Industry Agglomeration, Sub-National Institutions and the Profitability of Foreign Subsidiaries," Management International Review, Springer, vol. 58(6), pages 969-993, December.
    3. Spyridon Stavropoulos & Dimitris Skuras, 2016. "Firm Profitability and Agglomeration Economies: An Elusive Relationship," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 107(1), pages 66-80, February.
    4. Cui Zhang, 2017. "Top manager characteristics, agglomeration economies and firm performance," Small Business Economics, Springer, vol. 48(3), pages 543-558, March.

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