Incidence and Performance of Spinouts and Incumbent New Establishments: Role of Selection and Redeployability within Parent Firms.

Spinouts, or new ventures started by employees leaving a parent firm, have received special attention because spinouts tend to outperform other types of new firms. This superior performance is typically attributed to the better knowledge and higher-quality ideas developed by founders at the parent firms. However, parent firms can also select and implement such ideas internally, particularly if they are good quality ideas. We compare spinouts with new establishments formed within parent firms and find that consistent with such a process of selection, the latter outperform spinouts, more so in the case of larger parents. Interestingly, new establishments of parent firms tend to close at a greater rate than spinouts, consistent with parent firms being able to redeploy resources elsewhere within their firms.