Disagreements and intra-industry spinoffs

Abstract

A growing empirical literature on spinoff formation has begun to reveal some striking regularities about which firms are most likely to spawn spinoffs, when they are most likely to spawn them, and the relationship between the quality of the parent firm and its spinoffs.Deeper investigations into the causes of spinoffs have highlighted the importance of strategic disagreements in driving some employees to resign and found a new venture. Motivated by this literature, we construct a new theory of spinoff formation driven by strategic disagreements, and explore how well it explains the emerging empirical regularities.JEL Classification: L2, D70, D83.

Steven Klepper: Recipient of the 2011 Global Award for Entrepreneurship Research

“…Dynamics is introduced as heterogeneous individuals receive noisy information that will alter their expectations over time. Similar ideas are pursued in Klepper and Thompson (2006b).…”

A corporation’s culture as an impetus for spinoffs and a driving force of industry evolution

“…There are several triggering events of spinoffs discussed in the literature (e.g., Klepper and Thompson, 2010). , for instance, distinguishes necessity spinoffs from opportunity spinoffs.…”

“…Pakes and Nitzan (1983) offer an approach that relies on a contracting perspective to explain spinoffs, Franco and Filson (2006) argue that employees accept lower wages to work at better firms to attain knowledge they need to start their own firms, Klepper and Sleeper (2005) suggest a Hotelling-like model in which employees develop variants of their parents' products, Cabral and Wang (2009) argue that better firms spawn more and better spinoffs due to the fact that their own superior performance is based on the quality of their employees, and some more recent theories feature firms' difficulty to assess the quality of their employees' ideas (e.g., Klepper and Thompson, 2010). Our analysis of corporations' cultures and spinoff generation crosses several levels of analysis: first, organizational growth in different business environments, second, firms' evolving cultures as a result of collective learning processes in growing enterprises, third, the triggering of spinoffs through changes in a corporation's culture, and, fourth, the relation between firm development and the spinoff-driven evolution of an industry.…”

Entrepreneurial Spawning and Firm Characteristics

“…7 Regarding i), Amador and Landier (2002) induce spawning by attributing greater contractual flexibility to external, venture capital financing than to internal financing; Anton and Yao (1995) and Hellmann (2007) make the decision to spawn revolve around the allocation of intellectual property rights and, in the case of Hellmann, the need to induce an employee to exert effort on a core task where the employee might otherwise be tempted to exert effort on another, innovative task; Franco and Filson (2006) limit innovation to firms and employees to imitation; they induce spawning by requiring that an employee who wishes to innovate start his own firm; Klepper and Thompson (2009) attribute the decision to spawn to disagreements between employer and employee. Regarding ii), Fluck andLynch (1999), Gertner, Scharfstein, andStein (1994), Matsusaka and Nanda (2002), and Rajan, Servaes, and Zingales (2000) study internal capital markets in conglomerates; Stein (1997) studies winner-picking skills; Gomes and Livdan (2004) and Maksimovic and Phillips (2002) study decreasing returns to scale.…”