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The regional concentration of industries and the performance of firms: a multilevel approach

This paper presents the results of a study whose objective was to understand how location within industrial concentrations, like clusters or industrial districts, affects the financial performance of firms. In its theoretical framework, this paper attempts to introduce the reasons behind the alleged superior performance of firms located in these concentrations, the base of the hypothesis formulated in this study. Analysis from a three-level hierarchical linear model applied to a sample of 509 companies located in the state of Sao Paulo found no evidence that industrial concentrations provide firms with superior performance, contradicting expectations generated by the theory. The decomposition of the variance of performance indicated that the location of the firms and the form with which a city interacts with an industry exerts significant influence on how they will perform. In short, location matters to the future of firms. This finding underlines the need to understand how characteristics of cities or regions can promote or retard the performance of firms.