Firm Spin-offs in Denmark 1981-2000 - Patterns of Entry and Exit
AbstractThe 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 InfoPaper provided by University of Aarhus, Aarhus School of Business, Department of Economics in its series Working Papers with number 04-6.
Length: 35 pages
Date of creation: 28 May 2004
Date of revision:
Note: Published in: International Journal of Industrial Organization, 24 (2006), pp. 1021-1040
Contact details of provider:
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
More information through EDIRC
Entry; Exit; Spin-offs; Duration analysis;
Other versions of this item:
- Eriksson, Tor & Moritz Kuhn, Johan, 2006. "Firm spin-offs in Denmark 1981-2000 -- patterns of entry and exit," International Journal of Industrial Organization, Elsevier, vol. 24(5), pages 1021-1040, September.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-02 (All new papers)
- NEP-DCM-2004-06-02 (Discrete Choice Models)
- NEP-EEC-2004-06-02 (European Economics)
- NEP-ENT-2004-06-02 (Entrepreneurship)
- NEP-HIS-2004-06-02 (Business, Economic & Financial History)
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