Spin-offs: theory and evidence from the early U.S. automobile industry
AbstractWe develop "passive learning" model of firm entry by spin-off : firm employees leave their employer and create a new firm when (a) they learn they are good entrepreneurs (type I spin-offs) or (b) they learn their employer's prospects are bad (type II spin-offs). Our theory predicts a high correlation between spin-offs and parent exit, especially when the parent is a low-productivity firm. This correlation may correspond to two types of causality: spin-off causes firm exit (type I spin-offs) and firm exit causes spin-offs (type II spin-offs). We test and confirm this and other model predictions on a unique data set of the U.S. automobile industry. Finally, we discuss policy implications regarding "covenant not to compete" laws. ; Also issued as a Payments System Research Working Paper
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Bibliographic InfoPaper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 08-15.
Date of creation: 2009
Date of revision:
Other versions of this item:
- Zhu Wang & Luis Cabral, 2013. "Spin-offs: Theory and Evidence from the Early U.S. Automobile Industry," 2013 Meeting Papers 942, Society for Economic Dynamics.
- NEP-ALL-2009-01-10 (All new papers)
- NEP-BEC-2009-01-10 (Business Economics)
- NEP-COM-2009-01-10 (Industrial Competition)
- NEP-CTA-2009-01-10 (Contract Theory & Applications)
- NEP-ENT-2009-01-10 (Entrepreneurship)
- NEP-MIC-2009-01-10 (Microeconomics)
- NEP-TID-2009-01-10 (Technology & Industrial Dynamics)
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