Spinoffs’ alliance network growth beyond parental ties: performance diminishing, then performance enhancing

Abstract

Spinoff firms are a common phenomenon in entrepreneurship where employees leave incumbent parent firms to found their own. Like other types of new firms, such new spinoffs face liabilities of newness and smallness. Previous research has emphasised the role of the initial endowments from their parent firm to overcome such liabilities. In this study, we argue and are the first to show, that, in addition to such endowments, growing an alliance network with firms other than their parents’ is also critical for spinoff performance. Specifically, we investigate the performance effect of alliance network growth in newly founded spinoffs using a longitudinal sample of 248 spinoffs and 3370 strategic alliances in the mining industry. Drawing on theory based on the resource adjustment costs of forming alliances, we posit and find a U-shaped relationship between the alliance network growth and spinoff performance, above and beyond the parent firm’s influence. We further hypothesise and find that performance effects become stronger with increased time lags between alliance network growth and spinoff performance, and when spinoffs delay growing their alliance networks. Implications for theory and practice are discussed.