Employee Spinoffs and the Formation of Teams – Evidence from Brazil
Governments must decide whether to enforce noncompete clauses at the risk of discouraging employee entrepreneurship. The project finds for the period 1995-2001 in Brazil that between one-sixth and one-third of new formal sector businesses are employee spinoffs, and that spinoff firms outperform new formal sector businesses without identifiable parents in terms of size and survival. These results suggest that, as developing countries increasingly reform their legal practices to resemble those of developed countries, they should be wary of importing expanded enforcement of non-compete clauses that could restrict worker mobility and formation of employee spinoff firms.
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