Job Machine, Think Tank, or Both – What Makes Corporate Spinoffs Different?

Start-ups are a vehicle to transfer knowledge and technology within an economy. The way in which this occurs is that founders of start-ups pick up ideas that otherwise would have been neglected and bring them to the market. A group of start-ups which are especially apt to spread knowledge and technology are start-ups by previous employees of incumbent firms, usually called corporate spinoffs. The founders of these start-ups are assumed to transfer intellectual assets encountered during their employment. In this paper, we examine whether the transfer of ideas and skills from incumbent firms affects the employment growth and post-entry innovation activities of new firms.

A key contribution of our paper is that we apply a definition of corporate spinoff which directly draws on the notion of knowledge and technology transfer. The data set we use is the KfW/ZEW Start-Up Panel. It has explicit information on the importance of new ideas and skills that the founders developed during employment for setting up the firm. We classify a start-up as corporate spinoff if a new idea that emerged from the founders’ work for an incumbent firm has been essential for establishing the new firm. We apply propensity score matching in order to determine whether this idea is causally related to the employment growth and innovation activities of the corporate spinoff. As control group we use start-ups by previous employees for which such an idea has not been essential. We also analyse whether an idea that was at least of great importance and skills that were essential for establishing the firm affect these outcome indicators.

Our findings indicate that the transfer of an essential idea leads to higher post-entry innovation activities but not to higher employment growth. Start-ups that are based on an idea of at least great importance benefit from the idea both in terms of innovation activities and employment growth. However, essential skills have hardly any effect on these indicators. We conclude that a transferred idea is primarily an input factor and a stimulus for subsequent innovation activities of start-ups. In addition, our results show that it is important to carefully differentiate between varying types of knowledge and technology transfer. Start-ups do not benefit from all types to the same degree. With respect to innovation activities it is rather ideas that matter than skills.

Fryges, Helmut, Bettina Müller and Michaela Niefert (2013), Job Machine, Think Tank, or Both – What Makes Corporate Spinoffs Different?, ZEW Discussion Paper No. 13-093, Mannheim.