The Effect of Parent Firm Location on the Performance of Entrepreneurial Spawns : Evidence from Hedge Funds

We examine how parent firm location influences the performance of entrepreneurial spawns in the hedge fund industry. We find that hedge fund managers who previously worked for parent firms located in the industry hubs—New York and London—outperform their peers, regardless of where the hedge fund is located. These results are robust to controls for selection into job spells in New York/London based on all observable individual and parent firm characteristics. Interestingly, we do not find evidence that the actual location of the spawned hedge fund significantly impacts on its performance when controlling for the location of its parent firm. The evidence suggests that pre-founding agglomeration effects increase the value of individuals‘ human and social capital when they are still nascent entrepreneurs working for established firms, and that the entrepreneurs‘ pre-founding experience at the parent firms critically ―imprints‖ the new spawns and influences the spawns‘ capabilities and post-founding performance.