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How far from the tree does the (good) apple fall? Spinout creation and the survival of high-tech firms

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  • Fontana, Roberto
  • Zirulia, Lorenzo

Abstract

We develop a model of spinout creation and survival to explain how the initial product market strategies of spinouts may differ with respect to their parent's and how this difference affects their success. We test the model using detailed information on all the entrants in three markets in the Local Area Networking (LAN) industry during the 1990s. Our findings are consistent with the implications of the theoretical model. Concerning spinout generation, the parent firm's technological know-how plays an important role for differentiation. In particular, we find that spinouts tend to imitate ‘average’ parents and ‘keep away from the extremes’ (i.e., parents whose know-how is ‘too close’ or ‘too distant’ with respect to the technological frontier). Concerning spinout survival, we find that more technologically advanced spinouts survive longer and that there is no direct effect of a parent's know-how on spinout's survival. Finally, too much differentiation with respect to the parent firm can be detrimental for spinout success.

Suggested Citation

  • Fontana, Roberto & Zirulia, Lorenzo, 2023. "How far from the tree does the (good) apple fall? Spinout creation and the survival of high-tech firms," Journal of Economic Behavior & Organization, Elsevier, vol. 213(C), pages 26-49.
    • Handle: RePEc:eee:jeborg:v:213:y:2023:i:c:p:26-49
    DOI: 10.1016/j.jebo.2023.07.018
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    More about this item

    Keywords

    Spinouts; Entry; Product differentiation; Firm survival;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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