Where Do Entrepreneurs Form Spinouts: Human Capital, Parent Size and Destination Industry

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We examine how the level of founders’ human capital and parent size are related to the propensity of founders to stay in the same industry as parent firms or to go outside when they form spinouts. We argue that the performance penalty for high human capital individuals to form spinouts outside the parent industry is higher than that of low human capital individuals, so that high human capital individuals are more likely to form spinouts in the parent industry. However, such individuals are also more likely to face a greater competitive threat from large parents, which discourages them from forming spinouts in the parent industry. Using matched employer-employee data covering 30 U.S. states from 1990 to 2010, we find empirical support for these predictions.