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Abstract

We study the effect of geographical distance between the contracting parties on the timing of the licensing deal. Using insights from the transaction costs theory, we argue that geographical distance increases the search, information and contracting costs. We investigate this question using a novel dataset of licensing deals in France, containing geo-localization of parties together with detailed demographic and patent information. To identity the effect of geographical distance as a market friction, we control for the confounding determinants of the timing of the transaction. Because of the possibility that firms with similar interests may gather in business clusters, we argue that it is also important to control for the market and technology characteristics of the parties. We find that geographic distance delays the transaction, and that this effect is strong for SMEs. We also find market proximity to be a significant delayer of the licensing transaction. Our findings provide evidence for the existence of a local characteristic to markets for technology, which are usually seen as global.