My kind of people: Political polarization, ideology, and firm location

Abstract

Research Summary: With increased political polarization, Americans are displaying more animus across, and affinity within, ideological identity groups. We argue this dynamic incentivizes firms to minimize ideological misalignments across their workforce by locating new establishments in areas that are ideologically proximate to their current operations. We further argue that the desire to minimize ideological distance to new establishments is stronger in knowledge-intensive industries and young organizations. We find support for these arguments through the analysis of over 220,000 new establishment openings from 2009 to 2014. Critically, we find the effect of ideological distance on location is stronger when societal polarization is high. Our theory, and findings, contribute to several literatures and advance our understanding of the impact of polarization on strategy. Managerial Summary: Being a liberal or a conservative is central to many Americans' identity. As political polarization rises, individuals increasingly trust and favor others who share their ideological identity, while distrusting and avoiding those that do not. This study investigates how these societal trends affect where firms choose to locate new facilities. Because social ties and trust across workers support collaboration, resource-sharing and organizational performance, we argue that managers will seek ideological alignment within their firms by locating new establishments in areas that are ideologically proximate to existing operations. Analysis of over 220,000 new establishment openings from 2009 to 2014 supports this contention, and shows that the tendency to avoid ideologically distant locations is stronger when societal polarization is higher.