Founding teams of new firms frequently come from a common employer. We model the formation of founding teams and the entry of their new firms—employee spinoffs—by extending the theory of job matching and employer learning to learning also among employees. Employees build social capital as they learn about their colleagues’ suitable characteristics to start a spinoff firm. For spinoff firms, our model predicts that the separation hazard is lower among founding team members than among workers hired from outside at founding and, most notably, that this difference shrinks with worker tenure at the firm. For parent firms, a version of our model predicts that a worker’s departure hazard to join a spinoff initially increases with worker tenure at the parent, whereas the separation hazard for conventional quits and layoffs decreases with worker tenure as in the canonical employer learning model. All these predictions are clearly supported in Brazilian data for the period 1995-2001. Calibration of our dynamic model indicates that employee spinoffs raise the share of workers in Brazil’s private sector known to be of high match quality by 3.2 percent.
Muendler, M.A.; Rauch, J.E. Mobilizing Social Capital Through Employee Spinoffs. (2014) 60 pp.