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Spin-offs: theory and evidence from the early U.S. automobile industry

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  • Luis Cabral
  • Zhu Wang

Abstract

We 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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Paper provided by Federal Reserve Bank of Kansas City in its series Research Working Paper with number RWP 08-15.

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Date of creation: 2009
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Handle: RePEc:fip:fedkrw:rwp08-15

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References

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  1. April M. Franco & Matthew F. Mitchell, 2008. "Covenants not to Compete, Labor Mobility, and Industry Dynamics," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 17(3), pages 581-606, 09.
  2. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  3. Esteban Rossi-Hansberg & Satyajit Chatterjee, 2007. "Spin-offs and the Market for Ideas," 2007 Meeting Papers 86, Society for Economic Dynamics.
  4. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "Pattenrs Of Firm Entry And Exit In U.S. Manufacturing Industries," Papers 1-88-2, Pennsylvania State - Department of Economics.
  5. Steven Klepper, 2002. "The capabilities of new firms and the evolution of the US automobile industry," Industrial and Corporate Change, Oxford University Press, vol. 11(4), pages 645-666, August.
  6. repec:rje:randje:v:37:y:2006:i:4:p:841-860 is not listed on IDEAS
  7. April Mitchell Franco & Darren Filson, 2006. "Spin‐outs: knowledge diffusion through employee mobility," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 841-860, December.
  8. April Mitchell Franco & Darren Filson, 2000. "Knowledge diffusion through employee mobility," Staff Report 272, Federal Reserve Bank of Minneapolis.
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Cited by:
  1. Muendler, Marc-Andreas & Rauch, James E. & Tocoian, Oana, 2012. "Employee spinoffs and other entrants: Stylized facts from Brazil," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 447-458.
  2. Fryges, Helmut & Müller, Bettina & Niefert, Michaela, 2013. "Job machine, think tank, or both: What makes corporate spinoffs different?," ZEW Discussion Papers 13-093, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Fackler, Daniel & Schnabel, Claus, 2013. "Survival of spinoffs and other startups: First evidence for the private sector in Germany, 1976 - 2008," IWQW Discussion Paper Series 06/2013, Friedrich-Alexander-Universität Erlangen-Nürnberg, Institut für Wirtschaftspolitik und Quantitative Wirtschaftsforschung (IWQW).
  4. Cabral, Luís M B & Wang, Zhu & Xu, Yi (Daniel), 2013. "Competitors, Complementors, Parents and Places: Explaining Regional Agglomeration in the U.S. Auto Industry," CEPR Discussion Papers 9435, C.E.P.R. Discussion Papers.
  5. Christian Cordes & Peter Richerson & Georg Schwesinger, 2014. "A corporation’s culture as an impetus for spinoffs and a driving force of industry evolution," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 689-712, July.
  6. Zhu Wang & Daniel Yi Xu & Luis Cabral, 2012. "The Determinants of Geographic Concentration of Industry: A Quantitative Analysis," 2012 Meeting Papers 615, Society for Economic Dynamics.
  7. Peter Thompson & Jing Chen, 2011. "Disagreements, employee spinoffs and the choice of technology," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 455-474, July.

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