Intra-Industry Spinoffs

Posted: 4 Nov 2009

See all articles by Steven Klepper

Steven Klepper

Carnegie Mellon University - David A. Tepper School of Business

Peter Thompson

affiliation not provided to SSRN

Date Written: 2006

Abstract

Develops a new theory of spinoffs that accounts forthe role of disagreements in the spinoff process. Unlike existing theories, thenew theory can explain the main statistical regularities concerning spinoffs,including why spinoffs often come out of leading firms and why they aresuperior performers. After an examination of the role of internal disagreements in the formationof spinoffs in the automobile and laser industries, a model of disagreementsand spinoffs is presented. In the model, it is shown that disagreements occurwithin firms when employees with superior information and abilities are unableto convince incumbent managers of the merit of their ideas. When thesedisagreements are of sufficient magnitude to justify the cost of creating a newfirm, they spawn spinoffs. In the model, which accommodates the observedinfluence of strategic disagreements (e.g., acquisitions and the first passageproblem), spinoffs are socially productive and reflect an inherent strength ofcapitalism. The study concludes with a discussion of the welfare implicationsof the model. (SAA)

Keywords: Laser technology industry, Acquisitions & mergers, Conflict management, Social welfare, Parent firms, Niche markets, Intellectual property, Clusters, Agglomeration economies, Automotive industry, Spinoffs

Suggested Citation

Klepper, Steven and Thompson, Peter, Intra-Industry Spinoffs (2006). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1497868

Steven Klepper (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412-268-3235 (Phone)
412-268-6938 (Fax)

Peter Thompson

affiliation not provided to SSRN

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