Post‐Entry Diversification in a Shifting Institutional Environment: How Strategy Patterns Differ for De Novo and Corporate Spin‐Off Ventures

Abstract

In this study, we contend that the corporate spin‐off's entrance into a market is strongly conditioned by a strategic logic tied to its legacy history. Unencumbered by this logic, de novo entrants have at least two potential advantages. They learn differently, and they do not face the challenge of unlearning. We test our hypotheses in the context of a major shift in rules for drug approval in the pharmaceutical industry. The results show de novo entrants choose market options that were less connected to past decisions, while entrants with a tie to legacy firms shift less from their initial position. In addition, de novo entrants entered market areas that were less densely populated, as compared to corporate spin‐off entrants, which is evidence of a tendency for de novo entrants to avoid direct competition while corporate spin‐offs seek legitimacy through mimicry.

Additional information

Notes on contributors

Xuanli Xie

Xuanli Xie is an assistant professor of strategic management at National School of Development, Peking University.

Hugh O'neill

Hugh O’Neill is a professor of strategy and entrepreneurship and Edward M. O’Herron, Jr. distinguished scholar at Kenan-Flagler Business School, the University of North Carolina at Chapel Hill.

Justin Tan

Justin Tan is a professor of strategic management and Newmont endowed chair in business strategy at Schulich School of Business, York University.