Moving Away for Growth or from Uncertainty?

Abstract

We analyze the antecedents and effects on corporate outcomes and regional business dynamics of corporate headquarters’ relocation due to political uncertainty. We exploit the October 2017 referendum for Catalan independence which, unlike other referendums, stemmed from a regional initiative lacking legal support from the state. Using Bank of Spain data, we show that movers accounted for a quarter of the total assets of Catalan firms and were larger, younger, less capital intensive, and more leveraged. These firms displayed more variation in total assets and performance prior to the event, and were more likely to have international ownership and less likely to be family firms. Catalan movers displayed a market-like adaptation during the COVID-19 crisis. They had lower probabilities of relying on public funding and of being insolvent, and exhibited lower decreases in employment, sales, and sales to assets. We reveal that the referendum and headquarters’ relocations had real effects on regional business dynamics. Incorporation rates decrease in the region and new firms feature lower growth in assets and sales. In the areas from which large firms relocate, we find lower decreases in incorporation rates potentially revealing fewer labor opportunities; these new businesses grow even less than their counterparts.