Reciprocal Community Benefits: Community Engagement, Employment, and New Firm Outcomes

Abstract

Recent studies of the effects of community on new firm performance emphasize the benefits that firms gain from a geographic or collaborative community. However, it is less clear why geographic community members offer their support. We argue that it is the reciprocal benefits between firms and their communities — with the community offering support and the firms’ reciprocating with stable employment — that explains differences among the outcomes of new firms depending on their local communities. It also explains the endurance of geographic communities, despite the centrifugal forces of electronic communications and virtual or distributed collaborative communities. To support these ideas, we examine a sample of new firms with different levels of community engagement. We find that when a firm is more deeply engaged with a location, employment and survival increase compared to otherwise similar firms in that community. In contrast, new firms not as locally engaged grow sales faster than similar firms. Thus, our findings not only uncover a new mechanism to explain the role of employees and community in firm outcomes (the comparative valorization of employment), which in turn explains why geographic communities endure, we also provide a theoretical separation of firm survival from firm growth in entrepreneurship studies.