Beware of Greeks bearing gifts: Firms’ spinouts as means to capture competitors’ knowledge

Abstract

Prior work associates spinouts’ acquisitions by competitors to knowledge leakages and intellectual property misappropriation. In this paper, we argue that this logic is incomplete. Drawing on the literature on spillins and creative construction, we suggest that spinouts can function as a “Trojan horse” that parent firms can strategically employ to increase knowledge inflows from competing firms. We further posit that these inflows are likely to outweigh the outflows, thus suggesting that the competitors’ access to spinouts’ knowledge can provide parent firms with learning opportunities that compensate the costs of knowledge and human capital loss. Using unique longitudinal dataset on spinout activities in the Information and Communication Technology (ICT), we examine the patenting activities, investment and acquisition strategies of the top 96 U.S. firms operating in this industry during the period 1990-2009. Consistent with our theory, our results show that competitors’ investments into spinouts are asso...