Growing Through Spinoffs

Maurizio Iacopetta (), Raoul Minetti and Pierluigi Murro
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Maurizio Iacopetta: OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po

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Abstract: New firms are often based on ideas that the founders developed while working for incumbent firms. We study the macroeconomic effects of spinoffs through a growth model of product variety expansion, driven by firm entry, and product innovation. Spinoffs stem from conflicts of interest between incumbent firms' shareholders and employees. The analysis suggests that incumbents invest more in product innovation when knowledge protection is stronger. An inverted-U shape relationship emerges, however, between the intensity of spinoff activities and the strength of the rule of law. A calibration experiment indicates that, with a good rule of law, loosening knowledge protection by 53 reduces product innovation by one fifth in the short run and one seventh in the long run, but boosts the spinoff rate by one tenth and one sixth in the short and long run, respectively. Nevertheless, per capita income growth drops and welfare deteriorates. The trade-offs are broadly consistent with evidence from Italian firms.

Keywords: Corporate governance; Endogenous growth; Spinoffs (search for similar items in EconPapers)
Date: 2020-04-29
New Economics Papers: this item is included in nep-cse, nep-ent, nep-gro, nep-knm and nep-sbm
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03389197v1
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Working Paper: Growing Through Spinoffs (2020)
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