Post‐Entry Diversification in a Shifting Institutional Environment: How Strategy Patterns Differ for De Novo and Corporate Spin‐Off Ventures

Xuanli Xie, Hugh O'neill and Justin Tan

Journal of Small Business Management, 2018, vol. 56, issue S1, 281-296

Abstract: In this study, we contend that the corporate spin‐off's entrance into a market is strongly conditioned by a strategic logic tied to its legacy history. Unencumbered by this logic, de novo entrants have at least two potential advantages. They learn differently, and they do not face the challenge of unlearning. We test our hypotheses in the context of a major shift in rules for drug approval in the pharmaceutical industry. The results show de novo entrants choose market options that were less connected to past decisions, while entrants with a tie to legacy firms shift less from their initial position. In addition, de novo entrants entered market areas that were less densely populated, as compared to corporate spin‐off entrants, which is evidence of a tendency for de novo entrants to avoid direct competition while corporate spin‐offs seek legitimacy through mimicry.

Date: 2018
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DOI: 10.1111/jsbm.12262

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