Employee spinoffs and other entrants: Stylized facts from Brazil

Abstract

We gauge the prevalence and performance of firms founded as employee spinoffs, relative to other new firms with and without parents, and relative to diversification ventures of existing firms entering new industries. Using a comprehensive linked employer–employee database from Brazil for the universe of formal firms during the period 1995–2001, we are able to identify an employee spinoff either when the director/manager moved from a parent in the same industry or when one-quarter of the employees shifted from a common parent. Depending on definition, employee spinoffs account for between one-sixth and one-third of the new firms in Brazil's private sector during this period. Regardless of definition, size at entry is larger for employee spinoffs than for new firms without parents but smaller than for diversification ventures of existing firms. Similarly, survival rates for employee spinoffs are higher than for new firms without parents and comparable to those for diversification ventures of existing firms. These results suggest that we can think of some part of a firm's productivity and riskiness as embodied in the firm's employees and portable.