We gauge the prevalence and performance of firms founded as employee spinoffs, relative to new firms without parents and to diversification ventures of existing firms entering new industries. Using a comprehensive linked employer-employee database from Brazil for the period 1995-2001, we are able to identify an employee spinoff either when the director/manager moved from a parent in the same industry or when one-quarter of the employees shifted from a common parent. Depending on definition, employee spinoffs account for between one-sixth and one-third of the new firms in Brazil’s private sector during this period. Regardless of definition, size at entry is larger for employee spinoffs than for new firms without parents but smaller than for diversification ventures of existing firms. Similarly, exit rates for employee spinoffs are less than for new firms without parents and comparable to those for diversification ventures of existing firms. These results suggest that we can think of some part of a firm’s productivity draw in the Jovanovic (1982) model as embodied in the firm’s employees and portable by them to a new firm.
Hirakawa, O.; Muendler, M.A.; Rauch, J.E. Employee Spinoffs and Other Entrants: Stylized Facts from Brazil (IGC Working Paper). International Growth Centre (IGC), London, UK (2010) 28 pp.
Employee Spinoffs and Other Entrants: Stylized Facts from Brazil (IGC Working Paper)