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Firm Spin-offs in Denmark 1981-2000 - Patterns of Entry and Exit

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Author Info

  • Eriksson, Tor

    ()
    (Department of Economics, Aarhus School of Business)

  • Kuhn, Johan Moritz

    ()
    (Department of Economics, Aarhus School of Business)

Abstract

The motivation of this paper is to add new, large sample evidence on the extent to which the likelihood of business failure or success is related to relationships between parent firms and their 'off-spring'. For this purpose we make use of an exhaustive matched employer-employee data set covering the entire Danish private sector in years 1981 to 2000 to study firm entry and exit. Special focus is on spin-offs, a particular group of small entries, which are founded by groups of persons originating from the same former workplace. We estimate a multinomial logit model in order to examine which characteristics of the founders and the parent firms increase the probability of spinning off. Next, we carry out a duration analysis of the subsequent transitions of the spin-offs, and compare their exit risks with those of other entries, which have less strong parent-progeny relationships in terms of worker flows. With respect to entry, poor performance of the parent firm is found to be a key determinant of the decision to spin off. The spin-offs are shown to have a lower death risk than the comparison group, also after controlling for a host of firm and employee characteristics. The exit risks of spin-offs and the comparison group are observed to converge over time. However, when we cater for unobserved heterogeneity the convergence turns out to be predominantly an outcome of selection rather than the result of other start-ups catching up via some learning process. For the entire sample of entries, we find a positive association between size of the entry and survival probability, and a countercyclical sensitivity of exit risk.

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Bibliographic Info

Paper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 04-6.

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Length: 35 pages
Date of creation: 28 May 2004
Date of revision:
Handle: RePEc:hhs:aareco:2004_006

Note: Published in: International Journal of Industrial Organization, 24 (2006), pp. 1021-1040
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Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Phone: +45 89 486396
Fax: +45 8615 5175
Web page: http://www.asb.dk/departments/nat.aspx
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Keywords: Entry; Exit; Spin-offs; Duration analysis;

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References

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  1. Michael S. Dahl & Christian Ø.R. Pedersen & Bent Dalum, 2003. "Entry by Spinoff in a High-tech Cluster," DRUID Working Papers 03-11, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  2. Audretsch, David B & Mahmood, Talat, 1995. "New Firm Survival: New Results Using a Hazard Function," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 97-103, February.
  3. Cooper, Arnold C., 1985. "The role of incubator organizations in the founding of growth-oriented firms," Journal of Business Venturing, Elsevier, vol. 1(1), pages 75-86.
  4. Baldwin,John R. & Gorecki,Paul With contributions by-Name:Caves,Richard E., 1998. "The Dynamics of Industrial Competition," Cambridge Books, Cambridge University Press, number 9780521633574, April.
  5. Lazear, Edward, 2003. "Entrepreneurship," IZA Discussion Papers 760, Institute for the Study of Labor (IZA).
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Citations

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Cited by:
  1. Peter Thompson & Steven Klepper, 2009. "Disagreements and Intra-Industry Spinoffs," Working Papers 0907, Florida International University, Department of Economics.
  2. Andersson, Martin & Klepper, Steven, 2012. "Characteristics and Performance of New Firms and Spinoffs in Sweden," CIRCLE Electronic Working Papers 2012/4, Lund University, CIRCLE - Center for Innovation, Research and Competences in the Learning Economy.
  3. Oana Hirakawa & Marc-Andreas Muendler & James E. Rauch, 2010. "Employee spinoffs and other entrants: stylized facts from Brazil," LSE Research Online Documents on Economics 36384, London School of Economics and Political Science, LSE Library.
  4. 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).
  5. 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.
  6. 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.
  7. Aloña Martiarena, 2012. "Mobility of Skills and Ideas," DRUID Working Papers 12-04, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  8. Johannes Dick & Katrin Hussinger & Boris Blumberg & John Hagedoorn, 2013. "Is success hereditary? Evidence on the performance of spawned ventures," Small Business Economics, Springer, vol. 40(4), pages 911-931, May.

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