Entrepreneurial spawning: Public corporations and the genesis of new ventures, 1986 to 1999
Citation: Paul Gompers, Josh Lerner, David Scharfstein (2005) Entrepreneurial spawning: Public corporations and the genesis of new ventures, 1986 to 1999. The Journal of Finance (RSS)
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Tagged: Economics (RSS) Finance (RSS), Entrepreneurship (RSS), Business (RSS)
The authors investigation the question of entrepreneurial spawning -- essentially another word for "spinoffs" (see Klepper (2001) for a detailed discussion of spinoffs and the theories behind them). The paper is basically framed as a horse race between two theories:
- The Fairchild view which is largely modeled after Fairchild semiconductor which argues that companies that spin-off other companies tend to be entrepreneurial companies that connect employees to a set of networks of resources in terms of contacts, good, labor, capital, and networks of customers and that they provide something like an entrepreneurship school or a setting where employees are trained to be entrepreneurs.
- The Xerox view which is one of the spawning company as a large bureaucratic company which is reluctant to fund or follow-through on new ideas and creates an environment where new employees will turn to entrepreneurship to follow up on their ideas.
The paper finds that the most prolific spawning firms between 1986 and 1999 were public companies located in Massachusetts and Silicon Valley (and not anywhere else) and were themselves venture-backed. Large diversified firms spawned less. Essentially, they found in favor of the Fairchild view and did not find much evidence in support of the Xerox view.
That said, entrepreneurs clearly came from both types of firms and both types of spawning occurred in their dataset. That said, the Fairchild mechanism seemed to be the one that was supported as the more important one in their sample: entrepreneurial firms tend to be breeding grounds for other entrepreneurial firms.
Published in the Journal of Finance, the vast majority of the text of the article is a series of robustness checks for a variety of possible confounders (e.g., repeat entrepreneurs). The basic results seemed very robust to each of these checks.
Theoretical and Practical Relevance
Gompers et al.'s article has been cited 190 times in the previous 5 years in the management and economic literature on entrepreneurship. This paper cites Klepper's (2001) very similar paper in its introduction. Klepper's paper is more of a 3-way horse-race and none of the examples are a perfect match for the two models here, but the results in support of an evolutionary based theory seem, at least in large part, a partial reproduction of Klepper's basic results and are certainly in support of his fundamental conclusions.