Firm Spin-offs in Denmark 1981-2000 - Patterns of Entry and Exit

The motivation of this paper is to add new, large sample evidence on the extent to which the <p> likelihood of business failure or success is related to relationships between parent firms and their <p> 'off-spring'. For this purpose we make use of an exhaustive matched employer-employee data set <p> covering the entire Danish private sector in years 1981 to 2000 to study firm entry and exit. Special <p> focus is on spin-offs, a particular group of small entries, which are founded by groups of persons <p> originating from the same former workplace. <p> We estimate a multinomial logit model in order to examine which characteristics of the founders <p> and the parent firms increase the probability of spinning off. Next, we carry out a duration analysis <p> of the subsequent transitions of the spin-offs, and compare their exit risks with those of other <p> entries, which have less strong parent-progeny relationships in terms of worker flows. <p> With respect to entry, poor performance of the parent firm is found to be a key determinant of the <p> decision to spin off. The spin-offs are shown to have a lower death risk than the comparison group, <p> also after controlling for a host of firm and employee characteristics. The exit risks of spin-offs and <p> the comparison group are observed to converge over time. However, when we cater for unobserved <p> heterogeneity the convergence turns out to be predominantly an outcome of selection rather than the <p> result of other start-ups catching up via some learning process. <p> For the entire sample of entries, we find a positive association between size of the entry and <p> survival probability, and a countercyclical sensitivity of exit risk.