Working Papers, Department of Economics, Aarhus School of Business, University of Aarhus
Firm Spin-offs in Denmark 1981-2000 - Patterns of Entry and Exit
() and Johan Moritz Kuhn
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
originating from the same former workplace.
a multinomial logit model in order to examine which characteristics of the
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
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
the convergence turns out to be predominantly an outcome of selection
rather than the
result of other start-ups catching up via some learning
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; (follow links to similar papers)
JEL-Codes: L11; L25; M13; (follow links to similar papers)
35 pages, May 28, 2004
Published in: International Journal of Industrial Organization, 24 (2006), pp. 1021-1040
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