Entrepreneurial Spawning and Firm Characteristics
Michel A. Habib
University of Zurich; Swiss Finance Institute
HEC Paris - Finance Department; European Corporate Governance Institute (ECGI)
EDHEC Business School
March 1, 2013
Forthcoming in Management Science
Swiss Finance Institute Research Paper No. 11-01
We analyze the implications of the decision to spawn or to retain a new product for the nature and evolution of the firm. In our model, a new product is spawned if the fit between the product and its parent firm organization is not adequate. We focus on the impact of the firm's history of spawning decisions on firm characteristics such as size, focus, profitability, and innovativeness, and analyze its role in shaping firm dynamics. In accordance with the empirical literature, our model predicts that older firms innovate less, spawn less, are more diversified and less profitable, and that firms with more valuable general or specialized resources innovate and spawn more. Echoing seemingly contradictory empirical findings, our model predicts that small, focused firms (large, diversified firms) innovate and spawn more, and are more profitable when sample heterogeneity is driven by the importance of organizational fit (the value of general resources).
Number of Pages in PDF File: 34
Keywords: spawning, spinoffs, spinouts, general and specialized resources, firm organization, organizational fit, firm size, focus, profitability, innovativeness, spawning dynamics
JEL Classification: L25, M13, O31, O33
Date posted: February 1, 2011 ; Last revised: June 3, 2013
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