Abstract
Abstract. The motivation of this paper is to add large sample evidence to our knowledge 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, we find poor performance of the parent firm 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. We find that the exit risks of spin-offs and the comparison group are converging over time. However, when we cater for unobserved heterogeneity this observation 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.
| Original language | English |
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| Place of publication | Aarhus |
| Publisher | Aarhus School of Business |
| Number of pages | 35 |
| Publication status | Published - 2004 |