Entrepreneurial Spillovers from Corporate R&D

Abstract

How does corporate innovation investment affect employee departures to entrepreneurship (spawning)? Research and development (R&D) investment may generate growth options for the firm or make it a more interesting workplace, which could decrease spawning. Conversely, R&D investment could increase spawning if employees can appropriate some of the new growth options, or if engaging with the R&D process makes them more entrepreneurial. Using U.S. employer-employee matched Census data, we show that R&D investment increases spawning. We identify the causal effect of R&D with changes in federal and state tax incentives. The effect is driven by high-tech parents and by departures to high-growth and venture capital-backed entrepreneurship. Intellectual rather than human capital seems to explain the spawning (i.e., new ideas rather than skills). The effect does not impose observable costs on the parent, leading us to conclude that entrepreneurial spawning is a source of knowledge spillovers from corporate R&D.