Home sweet home: Social capital and location choice

We argue that social capital places strong constraints on an entrepreneur’s ability to found a firm in a region in which he or she does not have connections. We examine this thesis using comprehensive data on the Danish population and find evidence broadly consistent with this claim. Entrepreneurs tend to open businesses in regions in which they have deep roots (‘home’ regions). We further find that their ventures perform better (survive longer) when they locate in these home regions. The value of social capital moreover appears substantial, similar in magnitude to the value of having prior experience in the industry entered (i.e. human capital). Funding: Rockwool Foundation, Connaught Fund of the University of Toronto, Social Science and Humanities Research Council of Canada. Acknowledgments: Participants at the 2007 DRUID Summer Conference and in seminars at Harvard Business School, the University of Southern California, the University of Michigan, London Business School and Copenhagen Business School provided many valuable comments on earlier versions of this paper.