Firm Spin-offs in Denmark 1981-2000 - Patterns of Entry and Exit

Abstract: The motivation of this paper is to add new, large sample evidence on the extent to which the

likelihood of business failure or success is related to relationships between parent firms and their

'off-spring'. For this purpose we make use of an exhaustive matched employer-employee data set

covering the entire Danish private sector in years 1981 to 2000 to study firm entry and exit. Special

focus is on spin-offs, a particular group of small entries, which are founded by groups of persons

originating from the same former workplace.

We estimate a multinomial logit model in order to examine which characteristics of the founders

and the parent firms increase the probability of spinning off. Next, we carry out a duration analysis

of the subsequent transitions of the spin-offs, and compare their exit risks with those of other

entries, which have less strong parent-progeny relationships in terms of worker flows.

With respect to entry, poor performance of the parent firm is found to be a key determinant of the

decision to spin off. The spin-offs are shown to have a lower death risk than the comparison group,

also after controlling for a host of firm and employee characteristics. The exit risks of spin-offs and

the comparison group are observed to converge over time. However, when we cater for unobserved

heterogeneity the convergence turns out to be predominantly an outcome of selection rather than the

result of other start-ups catching up via some learning process.

For the entire sample of entries, we find a positive association between size of the entry and

survival probability, and a countercyclical sensitivity of exit risk.

Keywords: Entry; Exit; Spin-offs; Duration analysis (search for similar items in EconPapers)
JEL-codes: L11 L25 M13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2004-05-28
New Economics Papers: this item is included in nep-dcm, nep-eec, nep-ent and nep-his
Note: Published in: International Journal of Industrial Organization, 24 (2006), pp. 1021-1040
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.hha.dk/nat/wper/04-6_torjmk.pdf (application/pdf)

Related works:
Journal Article: Firm spin-offs in Denmark 1981-2000 -- patterns of entry and exit (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:aareco:2004_006

More papers in Working Papers from University of Aarhus, Aarhus School of Business, Department of Economics The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Helle Vinbaek Stenholt ( this e-mail address is bad, please contact ).