As far as I can say Location update is an idle mode activity and cannot cause a call drop. However LAC borders can cause call drops due to the following reasons.
1. There is an MSC boundary and since its a MSC controlled handover and takes long so the call drags on bad quality and drops.– call this drop due to Delayed HO.
2. Inter-MSC external LAC definition issue. Causes no HOs to take place between the cells again the call drags and drops.
3. Issue with links can also cause the HO failure and some times call drop even after a successful Handover due to signalling issues.