New firm formation in the wake of mergers and acquisitions: An exploration of push and pull factors

Monia Lougui,Anders Broström

doi:10.1007/s00191-020-00678-4

Monia Lougui, Anders Broström

Open Access

https://doi.org/10.1007/s00191-020-00678-4

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Abstract

This study investigates the relationship between mergers and acquisitions (M&A) and entrepreneurial spawning in labour-intensive service sectors. We discuss two sets of theoretical mechanisms. First, M&As may push employees into entrepreneurship by lowering the average barriers of leaving the current employment (i.e. being associated with general deterioration of working conditions). Second, M&A activities may generate new entrepreneurial opportunities, which are first and foremost accessible by employees directly affected by M&As. Results on entrepreneurial spawning in 3,198 Swedish firms during the time period 2000–2009 confirm that the number of firms spawned from a specific incumbent increases following an M&A. Push-oriented factors are found to contribute to this effect, but a dominating part of the total effect remains in the presence of proxies for push-effects. This suggests that pull-oriented explanations of opportunity creation in the wake of M&As constitute an important avenue for further research on the antecedents of new firm formation.

Highlights

What are the antecedents of firm formation? This is one of the fundamental questions in the literature on entrepreneurship and self-employment
We extend this latter line of enquiry by analysing the effect of merger and acquisition (M&A) activity on entrepreneurial spawning
The average economic returns to job mobility are somewhat lower in merger and post-merger years, and it becomes more common for people to leave their job for a worse paid job in the year following an mergers and acquisitions (M&A)

Summary

Introduction

What are the antecedents of firm formation? This is one of the fundamental questions in the literature on entrepreneurship and self-employment. A rich body of research on this topic has emerged in which firm formation is studied as a process with important links back to preceding organisations. Most importantly, this literature has highlighted links between new firms and those where a firm’s founders have previously worked Sørensen and Fassiotto 2011; Buenstorf 2016). On the basis of evidence that the rate of entrepreneurial spawning differs considerably across incumbent firms (Burton et al 2002), researchers have set out to identify the mechanisms that are at play. In the dominating strands of this literature, firm-level heterogeneity in entrepreneurial spawning is explained by differences in terms of capabilities, compensation policy and labour composition (Gompers et al 2005; Habib et al 2013). There exists convincing – albeit somewhat scattered – evidence suggesting that firm-level turbulence such as new CEO arrival is related to the intensity of entrepreneurial spawning (Eriksson and Kuhn 2006)

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