Location of Repository

Employee spinoffs and other entrants: stylized facts from Brazil

By Oana Hirakawa, Marc-Andreas Muendler and 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

Topics: HD Industries. Land use. Labor, HF Commerce
Publisher: International Growth Centre
Year: 2010
OAI identifier: oai:eprints.lse.ac.uk:36384
Provided by: LSE Research Online

Suggested articles



  1. (2000). and Erkko Autio, Global Enterpreneurship Monitor
  2. (1998). Arbache, “Mercado Formal de Trabalho: Comparação entre os microdados da
  3. (1990). Architectural Innovation: The Reconfiguration of Existing doi
  4. (1992). Boss” island: The subcontracting network and microentrepreneurship in Taiwan’s development, doi
  5. (2010). Client-Based Entrepreneurship,” doi
  6. (1993). Earnings Losses of Displaced Workers,” American Economic Review,
  7. (2009). Employee Spinoffs and Industrial Clustering: Evidence from doi
  8. (1982). Employee Spinoffs and Other Entrants: Stylized Facts from Brazil Jovanovic, Boyan, “Selection and the Evolution of Industry,” Econometrica, doi
  9. (2001). Employee Startups doi
  10. (1995). Endogenous Ownership, and the Limits to FirmSize,” Economic Inquiry, doi
  11. (2005). Entry by Spinoffs,” Management Science, doi
  12. (2005). Firm Size and the Quality of Entreprenuers,” CEPR Discussion Paper,
  13. (2006). Firm Spin-Offs in Denmark 1981-2000: Patterns of Entry and doi
  14. (2005). Global Enterpreneurship Monitor
  15. (2005). How is Value Created in Spin-Offs? A Look Inside the Black Box,” U.S. Census Bureau Center for Economic Studies Working Paper,
  16. (1999). Information Asymmetry, Valuation, and the Corporate Spin-off Decision,” doi
  17. Moral Hazard in Teams,” doi
  18. (1988). Patterns of Firm Entry and Exit in U.S. doi
  19. (1986). Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy,” Ricerche Economiche, October-December doi
  20. (1993). Restructuring through Spinoffs: The Stock Market Evidence,” doi
  21. (2008). Spin-offs: Theory and Evidence,” Federal Reserve Bank of Kansas City Research Working Paper,
  22. (2006). Spin-Outs: Knowledge Diffusion through Employee Mobility,” doi
  23. (2008). Spinout Entrepreneurship, Crony Capitalism, and Development,”
  24. (1995). Start-ups, Spin-offs, and Internal Projects,”
  25. (2001). technology and industry scoreboard: towards a knowledge-based economy, doi
  26. (1989). The Growth and Failure of U.S. doi
  27. (2009). The Origin and Growth of Industry Clusters: The Making of Silicon Valley and doi
  28. (2001). The Relative Importance of Employer and Employee Effects on Compensation: doi
  29. (1993). The Rigid Disk Drive Industry: A History of doi
  30. (2008). The Structure of Worker Compensation in Brazil, With a Comparison to France and the United States,” Review of Economics and Statistics, doi
  31. (2007). Using Worker Flows to Measure Firm Dynamics,” doi

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.