Firm Value and Geographic Competitive Advantage: Evidence from the U.S. Pharmaceutical Industry

Abstract

This paper examines the effects of geographic sources of competitive advantage on firm value among publicly-traded pharmaceutical companies in the United States. A central argument is that firm value responds positively to geographic factors. We hypothesize that firm value is influenced by the degree of industry clustering, the availability of specialized business services, the presence of related or supporting industries, university and industrial R&D spending, and local demand. The empirical results lend support to our hypotheses. Specifically, the data show that companies located within major production clusters exhibit higher firm value than their counterparts located elsewhere. Even after controlling for the firm value determinants used by Fama and French (1998), geographic variables explain a significant part of the cross-sectional variation in firm value.

Keywords: Firm Value, Geographic Competitive Advantage

JEL Classification: G10, G30, L10, O18, O32, O33