Economics Seminar - "Management and Spinout Dynamics"

Management practices have been shown to impact the performance of existing firms. This paper studies the role of management on the creation of employee spinouts - firms founded by ex-employees of existing firms - and it's implications for spinout entry and growth. Using micro-data from Mexico I document a relationship between employer size and spinout dynamics. First, I find a negative relationship between employer size and spinout entry. Second, I uncover a novel, positive relationship between employer size and spinout performance. Spinouts from larger employers outperform spinouts from smaller employers at entry and over the lifecycle. I reconcile these findings in a model of occupational choice where workers can adopt the productive know-how of their employers to create their own firms - spinouts. Good management practices makes this adoption easier. When calibrated to match the spinout rates in Mexico and the US, differences in management quality are able to explain a significant fraction of differences in firm size distribution, productivity and dynamics between the two countries. These findings can also guide interventions aimed at improving managerial quality. Unlike in the model without spinouts, productivity gains are higher if interventions are aimed at poorly managed, large firms versus poorly managed, small firms.