It is well-known that employee spinoffs have played a significant role in the early evolution of many high-tech industries. They have frequently accounted for a significant fraction of entrants, and on average have out-performed other types of entrants. Because of their prominent role, a number of theories of spinoffs have been devel- oped.1 One class of theories proposes that new projects often have limited value to existing firms because their implementation would cannibalize existing rents [e.g., Christensen (1993), Klepper and Sleeper (2005)]. In a second class, employees learn from their employers and they exploit this knowledge by forming a spinoff [e.g., Agarwal et al. (2004), Franco and Filson (2006), Franco and Mitchell (2008)]. In the third class, an idea with uncertain value occurs serendipitously to an employee, who may induce his employer to develop and implement it, or who may develop it himself in a spinoff [e.g., Amador and Landier (2003), Hellman (2007)].
This paper belongs to the second and third classes. It develops a model in which firms engaged in one strategy, x, are presented with an opportunity to change strategy to y upon payment of a switching cost, c. The value of y is not known in advance, but must be learned over time from noisy signals. Firms are initially formed of like- minded individuals who subsequently observe diverse private signals about y. Al- though they communicate their signals to each other, communication is imperfect, so in the short-term disagreements about the firm’s best strategy are inevitable. Spinoffs occur if disagreements become sufficiently profound to justify the cost, k ␣ c, of forming a new firm.
This model builds on ideas developed in Klepper and Thompson (2009). In their ...
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... parents when the incum- bent’s cost of switching strategy is sufficiently high. For both types of spinoffs, aver- age performance is increasing in the quality of the parent, and this is true when we measure the initial or post-switching performance of the parents of type 2 spinoffs. The quality of parents also influences the likelihood of spinoffs. First, the model pre- dicts that spinoffs are most likely to be spawned by parents of intermediate quality, a prediction at odds with much prior theorizing. Second, among firms that spawn spi- noffs, high-quality parents are more likely than low-quality parents to spawn type 1 rather than type 2 spinoffs. There are no performance spillovers across strategies, in the sense that y is independent of x, and the correlation between parent quality and spinoff probabilities and performance is induced by pure selection effects.
Homogeneity of products is depicted as goods and services that are same or comparable in nature. Since goods are homogenous, firms feel committed to vie for any relative point of interest that they can increase over their opposition. The more homogeneous the product in any industry the further we would expect to see competition (Spar and Yoffie 155). Another factor is transaction costs, the more difficult and time consuming a relocation will be the less likely it will occur. The stickiness is the resistance of a cost to change, in spite of changes in the more extensive economy recommendation of an alternate cost is ideal. Generally, it implies that the costs charged for specific goods and service are hesitant to change despite changes in input cost or demand patterns. Since, most firms cannot switch plant locations freely as most, it will bring around considerable expenses from moves crosswise over fringes. The higher these expenses, the stickier investments will prove to be and stickier investments will evidently decrease the momentum for the race to the bottom. These factors contribute greatly to differences in industry structure and incentives. In addition, there also exist invisible costs such as hiring and training new employees, building contracts etc. Prerequisites must be met, for example,
Gaughan, P. A., 2002. Mergers, Acquisitions, and Corporate restructuring. 3rd ed.New York: John Wiley & Sons, Inc.
The essential factor of an oligopolistic firm is interdependence. Oligopoly involves few producers, which means more than one producer as it is in pure monopoly but not so many as in monopolistic competition or pure competition where it is difficult to follow rival firms’ actions. Therefore, due to small number of producers on oligopoly market, the price and output solutions are interdependent. As a result, firms can cooperate or come to an agreement profitable for everyone. Therefore, they can increase, as it is possible, their joint profits (Pleeter & Way, 1990, p.129). Further, oligopoly is divided on pure, which is producing homogeneous products, and differentiated, producing heterogeneous products (Gallaway, 2000). Economists Farris and Happel insist that the more the product is differentiated, the more firms become independent, and the more the product differentiation, “the less likely joint profit maximization exists for the entire group” (1987, p. 263). Consequently, it is worth to be interdependent.
In addition to the pro-competitive economic effect some firms also experience what is known as a post-merger which is basically an incentive for a firm to raise downstream competitor costs by raising upstream market costs. Hence the increased price pressures the previously established downstream prices which cause conflict.
Here we are interested in the strategic nature of competition between firms. "Strategic" means the dependence of each person's proper choice of action on what he expects the other to do. A strategic move of a person influences the other person's choice, the other person's expectation of how would this particular person behave, in order to produce the favourable outcome for him.
Companies merge and acquire other companies for a lot of strategic reasons with different degree of success. The success of a merger is measured by whether the value of the acquiring firm is enhanced by it. The impact of mergers and acquisitions on organization can be small and big in other cases.
Entrepreneurship and Intrapreneurship has been an essential part of 3M culture. Evolutionary spin-offs have developed a key...
The topic of IPO spinning is one that has not received much attention in the recent past. Amidst the recent financial crisis we have experienced the IPO market became relatively quiet. However, there is a large consensus that the IPO market may become much more active in the near future and it seems like an appropriate time to look at an issue that may again surface. We examined the article “A New Look at an Old Trick: IPO Spinning” from The Wall Street Journal. This article gives a brief outline of what IPO spinning is, a look at one of the more high profile cases of Frank Quattrone, and provides some evidence of the effects it has from a study by Xiaoding Liu and Jay Ritter.
The American ventured companies, with venture work system, have special methods to align incentives between owners, management and employees. The companies provide stock options to top managers, as well as junior employees. The focus is on company’s profitability, which is the main objective in market oriented companies, with public ownership and employees with no legal security of their
Intrapreneurship is also renowned as sustained regeneration (Covin & Miles, 1999) has ability to generate and sustain innovation for creativity. (Hitt, 2002) Moreover, intrapreneurship help corporations succeed under compound and highly demanding circumstances through leveraging corporation performance. (Amo & Kolvereid, 2005) When compared to corporate entrepreneurship, intrapreneurship is more of a bottom-up approach from self-initiated ingenuities to seed innovation by influencing organization. (Block and Macmillian, 1993) Meanwhile, intrapreneurs aid their organizations through their innovativeness by strengthening market place, and reshuffling strategies and structures. (Davis,1999; Antoncic & Hisrich,2001)
A franchise, by definition is a legal agreement that allows one organization with a product, idea, name or trademark to grant certain rights and information about operating a business to an independent business owner. In return, the business owner (franchisee) pays a fee and royalties to the owner. This one-time fee paid by the franchisee to the franchisor is referred to as a franchise fee. The fee pays for the business concept, rights to use trademarks, management assistance and other services from the franchisor. This fee gives the franchisee the right to open and operate a business using the franchisor’s business ideas and products. A royalty fee is a continuous fee paid by the franchisee to the franchisor. The royalty fee is usually a percentage of the gross revenue earned by the franchisee. The Federal Trade Commission (FTC) is authorized by the United States Congress to regulate the franchise business. The Federal Trade Commission oversees the implementation of the Franchise Trade Rule, which requires that franchisors disclose all pertinent information to potential buyers of a franchise, and monitors the activities of franchisors.
Corporate Governance " Corporate governance - ten years ago the phrase was not used, today it is commonplace. The work of company directors is in the spotlight. The issues are legion: How to improve corporate performance and strategies, how to ensure corporate conformance through executive supervision and accountability, the role of outside directors, audit committees, chairman and CEO, directors' remuneration, German two-tier boards, Japanese boards, institutional, investor power….. " (Corporate Governance, Bob Tricker, 1984)
He wonderfully describes it as “the externally oriented, opportunity seeking attitude that motivates employees to run their operations as if they owned them”. This line summarizes the way Sumantra feels about the entrepreneurial process in an organization. Every employee will be lost in the process of sticking to the hierarchy and the various other static structures within the organization and forgets that the true innovation will happen at the grass root level when the employee takes complete ownership of the task. Sumantra was one of the earliest to spot this as a management initiative to drive in the culture of the organization and used it as a sound basis to criticize the existing system structure doctrine. The authors quote examples of 3M, Intel and Canon for showing that these companies maintained that entrepreneurial spirit in spite of the growth they achieved in terms of size and revenues. However, the authors go on to caution that the “mere existence of small units does not guarantee that they will be innovative”. Just like 3M, even the top management at ABB has begun to focus on its frontline small units as they believe that they will be the primary locus of the organizations assets and
The Oxford English Dictionary defines ‘governance’ as ‘the act, manner, fact or function of governing, sway, control’. ‘To govern’ is ‘to rule with authority’, ’to exercise the function of government’, ‘to sway, rule, influence, regulate, determine’, ‘to conduct oneself in some way; curb, bridle (one’s passions, oneself)’, or ‘to constitute a law for’.
1997). By reviewing the literature on learning and innovation, we try to answer the following