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Incidence and Performance of Spinouts and Incumbent New Ventures: Role of Selection and Redeployability within Parent Firms

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  • Natarajan Balasubramanian
  • Mariko Sakakibara

Abstract

Using matched employer-employee data from 30 U.S. states, we compare spinouts with new ventures formed by incumbents (INCs). We propose a selection-based framework comprising idea selection by parents to internally implement ideas as INCs, entrepreneurial selection by founders to form spinouts, and managerial selection to close ventures. Consistent with parents choosing better ideas in the idea selection stage, we find that INCs perform relatively better than spinouts, and more so with larger parents. Regarding the entrepreneurial selection stage, we find evidence consistent with resource requirements being a greater entry barrier to spinouts and greater information asymmetry promoting spinout formation. Parents’ resource redeployment opportunities are associated with lower relative survival of INCs, consistent with their being subject to greater selection pressures in the managerial selection stage.

Suggested Citation

  • Natarajan Balasubramanian & Mariko Sakakibara, 2021. "Incidence and Performance of Spinouts and Incumbent New Ventures: Role of Selection and Redeployability within Parent Firms," Working Papers 21-27, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:21-27
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    File URL: https://www2.census.gov/ces/wp/2021/CES-WP-21-27.pdf
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    Keywords

    spinouts; new venture formation process; new venture performance; selection; resource redeployability;
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