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Who enters, where and why? The influence of capabilities and initial resource endowments on the location choices of de novo enterprises

Dartmouth College, USA, aviad.peer{at}tuck.dartmouth.edu

Ilan Vertinsky

University of British Columbia, Canada, ilan.vertinsky{at}sauder.ubc.ca

Andrew King

Dartmouth College, USA, andrew.a.king{at}tuck.dartmouth.edu

Some geographical locations have characteristics that create opportunities for de novo enterprises, but not all new firms can access the benefits presented by a potential location. The ability of new firms to appropriate benefit and avoid risk depends on the resources that entrepreneurs can marshal for their enterprise. This article develops a model of the interplay between the attributes of de novo entrants and their founding locations. The model assumes that de novo entrants tend to appear in the region where their founders live, but that founders choose among locations within their regions.The test of the model, using data on all de novo entrants in the Canadian manufacturing sector during 1984—98, reveals that entrants with greater resource and capability endowments are more likely to locate in areas with an agglomeration of similar firms, but this effect reverses at high endowment levels. Additionally, larger entrants are less likely to locate in areas characterized by intense local competition and potential entry deterrence, while smaller and well-endowed entrants tend to locate in areas where entry barriers are lower and asset turnover higher. These findings suggest that entrants choose locations strategically within their founding regions.They also indicate that the strategic imperatives of de novo entrants differ significantly from those of geographically diversifying firms, and thus suggest amendments to theories of location choice when modeling the decisions of new ventures.

Key Words: adverse and favorable selection • agglomeration • de novo entrants • location choice • resources and capabilities

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