IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Employee spinoffs and other entrants: stylized facts from Brazil

  • Oana Hirakawa
  • Marc-Andreas Muendler
  • James E. Rauch

Where do the capabilities of new firms in developing countries come from? One answer is from other firms: employees spin off to launch their own businesses. In this project, Marc Muendler and James Rauch of the University of California, San Diego computed, for the first time, the share of employee spinoffs in a representative sample of a developing country’s new firms using precise and replicable criteria. Working with a comprehensive linked employer-employee database for Brazil, Muendler and Rauch found that, depending on definition, employee spinoffs accounted for between one-sixth and one-third of the new firms in Brazil’s formal private sector during the period 1995-2001. Having identified employee spinoff firms, Muendler and Rauch used them to shed light on two kinds of intrafirm learning. The first kind is learning by employees about their employer’s technology, customers, and suppliers. The second kind is learning by employees about the capabilities and preferences of their colleagues. The first kind of intrafirm learning is reflected in the findings of Muendler and Rauch for basic indicators of performance of new employee spinoff firms compared to other entrants. Regardless of definition, size at entry is larger for employee spinoffs than for new firms without “parents” but smaller than for diversification ventures of existing firms. Similarly, exit rates for employee spinoffs are less than for new firms without parents and comparable to those for diversification ventures of existing firms. These results are consistent with the idea that a spinoff partially inherits its spawning parent’s productivity through the knowledge that the founding workers take with them. Muendler and Rauch also found evidence that employee spinoff firms learned about the customers of their parents. In particular, exporting spinoffs from exporting parents copied their parents’ export destinations and even supplanted their parents as suppliers for those destinations. Supplying their parents’ customers may be one of the reasons for Muendler and Rauch’s finding that spinoffs locate even closer to their parents than their parents’ own new plants, contributing to the formation of industrial clusters. Muendler and Rauch obtained results for the second type of learning as well, that of employees about their colleagues. They contrasted the survival at spinoff firms of employees who moved together from the parent with outside workers hired at the same time. The year-to-year survival rate of the founding-team workers was substantially higher, reflecting that they had been recruited by colleagues who knew they would be good fits with the new firm, but the survival rate of the outsiders gradually caught up as the ones who were bad fits were weeded out. After five years, workers hired from the parent firm were 52 percent more likely to remain with the spinoff firm than outside hires. The research of Muendler and Rauch shows that, in a developing country like Brazil, employee spinoff firms offer an important mechanism through which informal learning by employees within firms is mobilized to create new firms and jobs.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Open access version.
Download Restriction: no

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 36384.

in new window

Length: 27 pages
Date of creation: Dec 2010
Date of revision:
Handle: RePEc:ehl:lserod:36384
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Menezes Filho, N. A. & Menezes Filho, N. A., 2007. "The Structure of Worker Compensation in Brazil, With a Comparison to France and the United States," Insper Working Papers wpe_78, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
  2. E. Wayne Nafziger, 2008. "Entrepreneurship and Development," Chapters, in: International Handbook of Development Economics, Volumes 1 & 2, chapter 26 Edward Elgar.
  3. Steven Klepper & Sally Sleeper, 2005. "Entry by Spinoffs," Management Science, INFORMS, vol. 51(8), pages 1291-1306, August.
  4. Debarshi Nandy & Thomas Chemmanur, 2005. "How is Value Created in Spin-Offs? A Look Inside the Black Box," Working Papers 05-09, Center for Economic Studies, U.S. Census Bureau.
  5. Timothy Dunne & Mark J. Roberts & Larry Samuelson, 1988. "Patterns of Firm Entry and Exit in U.S. Manufacturing Industries," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 495-515, Winter.
  6. Hvide, Hans K., 2004. "Firm Size and the Quality of Entrepreneurs," Discussion Papers 2004/9, Department of Business and Management Science, Norwegian School of Economics.
  7. Dunne, T. & Roberts, M.J. & Samuelson, L., 1988. "The Growth And Failure Of U.S. Manufacturing Plants," Papers 1-87-5, Pennsylvania State - Department of Economics.
  8. James E. Rauch & Joel Watson, 2010. "Client-Based Entrepreneurship," NBER Working Papers 15933, National Bureau of Economic Research, Inc.
  9. Luis Cabral & Zhu Wang, 2009. "Spin-offs: theory and evidence from the early U.S. automobile industry," Research Working Paper RWP 08-15, Federal Reserve Bank of Kansas City.
  10. Louis S. Jacobson & Robert J. LaLonde & Daniel Sullivan, 1992. "Earnings Losses of Displaced Workers," Upjohn Working Papers and Journal Articles 92-11, W.E. Upjohn Institute for Employment Research.
  11. Hvide, Hans K, 2005. "The Quality of Entrepreneurs," CEPR Discussion Papers 4979, C.E.P.R. Discussion Papers.
  12. John M. Abowd & Francis Kramarz & David Margolis & Kenneth R. Troske, 1996. "The Relative Importance of Employer and Employee Effects on Compensation: A Comparison of France and the United States," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00378212, HAL.
  13. Alchian, Armen A & Demsetz, Harold, 1972. "Production , Information Costs, and Economic Organization," American Economic Review, American Economic Association, vol. 62(5), pages 777-95, December.
  14. Teece, David J., 1986. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 15(6), pages 285-305, December.
  15. Krishnaswami, Sudha & Subramaniam, Venkat, 1999. "Information asymmetry, valuation, and the corporate spin-off decision," Journal of Financial Economics, Elsevier, vol. 53(1), pages 73-112, July.
  16. Filho, Naerico Aquino Menezes & Muendler, Marc-Andreas & Ramey, Garey, 2006. "The Structure of Worker Compensation in Brazil, With a Comparison to France and the United States," University of California at San Diego, Economics Working Paper Series qt8pr105rg, Department of Economics, UC San Diego.
  17. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
  18. April Mitchell Franco & Darren Filson, 2000. "Knowledge diffusion through employee mobility," Staff Report 272, Federal Reserve Bank of Minneapolis.
  19. 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.
  20. Ellen R. McGrattan & Edward C. Prescott, 2010. "Unmeasured Investment and the Puzzling US Boom in the 1990s," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 88-123, October.
  21. Cusatis, Patrick J. & Miles, James A. & Woolridge, J. Randall, 1993. "Restructuring through spinoffs*1: The stock market evidence," Journal of Financial Economics, Elsevier, vol. 33(3), pages 293-311, June.
  22. Bengt Holmstrom, 1981. "Moral Hazard in Teams," Discussion Papers 471, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  23. 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.
  24. Carol Corrado & Charles Hulten & Daniel Sichel, 2009. "Intangible Capital And U.S. Economic Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 661-685, 09.
  25. Wiggins, Steven N, 1995. "Entrepreneurial Enterprises, Endogenous Ownership, and the Limits to Firm Size," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 54-69, January.
  26. Benedetto, Gary & Haltiwanger, John & Lane, Julia & McKinney, Kevin, 2007. "Using Worker Flows to Measure Firm Dynamics," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 299-313, July.
  27. 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.
  28. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
  29. Klepper, Steven, 2001. "Employee Startups in High-Tech Industries," Industrial and Corporate Change, Oxford University Press, vol. 10(3), pages 639-74, September.
  30. Anton, James J & Yao, Dennis A, 1995. "Start-ups, Spin-offs, and Internal Projects," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(2), pages 362-78, October.
  31. 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.
  32. repec:rje:randje:v:37:y:2006:i:4:p:841-860 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:36384. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LSERO Manager)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.