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Spinout Formation: Do Opportunities and Constraints Benefit High Capital Founders?

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  • Natarajan Balasubramanian
  • Mariko Sakakibara

Abstract

We examine the role of human capital in employees’ decisions to leave their parent firms andform spinouts. Using a large sample of individuals who formed spinouts in manufacturing industries between 1992 and 2005, and their co-workers who did not, we find that after controlling for age, education level, gender and alien status, individuals with higher human capital (measured as their earnings or experience) are more likely to form spinouts. We then examine the impact of industry opportunities and constraints on the propensity of high human capital individuals to form spinouts. Counterintuitively, we find that both industry constraints (measured as industry capital intensity) and opportunities (industry R&D intensity) reduce the propensity of higher human capital individuals to form spinouts. We interpret these results as being consistent with the argument that high human capital founders are more likely to choose larger, more capital-intensive projects than low human capital individuals, and thus face greater constraints. On the other side, R&D intensive industries appear to present abundant entrepreneurial opportunities, allowing low human capital individuals to identify their own opportunities thus decreasing the relative advantage of high human capital individuals.

Suggested Citation

  • Natarajan Balasubramanian & Mariko Sakakibara, 2015. "Spinout Formation: Do Opportunities and Constraints Benefit High Capital Founders?," Working Papers 15-07, Center for Economic Studies, U.S. Census Bureau.
    • Handle: RePEc:cen:wpaper:15-07
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    References listed on IDEAS

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