The Growth and Job Creation of Spin-Offs: Empirical Evidence from Denmark

Abstract

Employment is often the primary motivation behind entrepreneurial and industrial policy. But new firms are known to differ greatly in performance. Not every new firm survives and even fewer achieve high growth rates. It is well established that spin-offs – firms founded by employees from incumbent firms in the same industry – outlive other types of entrants. Survival of new firms is a requisite for a long-term contribution to employment. But are spin-offs more successful than other firms in terms of employment growth as well? Or is there a trade-off between growth and survival exists as seen for older firms? Exploring a comprehensive dataset covering all entrants in the Danish economy from 1995 to 2004, we investigate how the job creation and employment growth of spin-offs differs from that of other entrants in terms of growth rates, variation and sustainability. We find that spin-offs are not only surviving longer, they also constitute a more homogeneous group, show increased stability in growth patterns and are relatively more important for job creation in the economy compared to other entrants.

Keywords: Spin-off, Growth, Job creation, Contribution to the economy

JEL Classification: E60, M16