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Entrepreneurial Spawning and Firm Characteristics

Forthcoming in Management Science

Swiss Finance Institute Research Paper No. 11-01

34 Pages Posted: 1 Feb 2011 Last revised: 3 Jun 2013

Michel A. Habib

University of Zurich; Swiss Finance Institute

Ulrich Hege

Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Pierre Mella-Barral

Toulouse Business School

Date Written: March 1, 2013

Abstract

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).

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

Suggested Citation

Habib, Michel A. and Hege, Ulrich and Mella-Barral, Pierre, Entrepreneurial Spawning and Firm Characteristics (March 1, 2013). Forthcoming in Management Science; Swiss Finance Institute Research Paper No. 11-01. Available at SSRN: https://ssrn.com/abstract=1752848 or http://dx.doi.org/10.2139/ssrn.1752848

Michel A. Habib (Contact Author)

University of Zurich ( email )

Plattenstrasse 14
Zurich, 8032
Switzerland
41-44-634-2507 (Phone)
41-44-634-4903 (Fax)

HOME PAGE: http://www.isb.uzh.ch/institut/profs/mhabib.htm

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Ulrich Hege

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France
+33 5 61 12 86 01 (Phone)

HOME PAGE: http://https://www.tse-fr.eu/people/ulrich-hege

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Pierre Mella-Barral

Toulouse Business School ( email )

20, bd Lascrosses
Toulouse, 31068
France

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