The Effect of Executive Migration and Spin-offs on Incumbent Firms

If spin-offs are founded on intellectual capital accumulated at the parent firms,
they could be potentially harmful to those firms. However, similar effects on parent
firms’ performance could be expected for executive migration to rivals. Exploiting a comprehensive Danish linked employer-employee database, we investigate how spin-off and executive migration to rivals affect parent firms’ hazard of exit, sales growth and employment growth. We find negative performance effects from executive migration independent on where employees go to. While departures of top employees to found spin-offs have negative effects on parent firm performance, the effect is not significantly different from top employees who resign to competing incumbent firms. All effects decrease over time, but parent firms recover faster from spin-off migration. We study this using different methods, including matched models adjusting for parent firm heterogeneity.