When Do Spinouts Enhance Parent Firm Performance? Evidence from the U.S. Automobile Industry, 1890–1986

Abstract

Spinouts—entrepreneurial ventures founded by ex-employees of incumbent firms within the same industry—have emerged in numerous industries. Some existing literature argues that they typically have a negative association with their parents’ performance because of the loss of human capital, the disruption of organizational routines, and subsequent adverse competitive effects. More recent work, however, suggests that such negative effects may have been overstated and argues that there are conditions under which spinouts may be linked to enhanced performance of the parent. I contribute to this literature by theorizing about and empirically testing for such conditions. In particular, using data from the U.S. automobile industry spanning 1890 to 1986, I find evidence that spinouts are associated with enhanced parent performance when they increase the parent’s corporate coherence either through (a) the core competencies and capabilities domain by refocusing the parent’s resources on the core or (b) the cognitive path by resolving a conflict at the top level of the parent’s hierarchy. I discuss implications for both research and practice.

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