The Rejuvenation of Inventors through Corporate Spin-Outs

This article focuses on corporate spin-outs as a strategy that can rejuvenate the inventive efforts of inventors with a long tenure in the same company. We rely on an unbalanced panel of 5,604 inventor-year observations to study a matched sample of 431 inventors employed by Xerox Corporation and find evidence in support of three predictions. First, inventors that join a spin-out increase the extent of exploration in their inventive activities. Second, they decrease the extent to which they rely on the parent organization’s knowledge. Third, because long-tenured employees, through socialization, tend to progressively adopt more exploitative behavior than short-tenured members, they benefit relatively more from the spin-out experience. These results are robust to several econometric specifications that try to account for the endogeneity of inventors’ decision to join the spin-out, for the fact that spin-outs’ inventive activity may be intrinsically different from that of the parent company, and for the possible presence of novel external stimuli for those who join spin-outs. The data provide large-sample evidence consistent with the idea that socialization reduces opportunities for organizational learning; we discuss the implications for theory and practice.