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Martin Ganco, PhD - Wisconsin School of Business, University of Wisconsin-Madison

Martin Ganco, PhD - Wisconsin School of Business, University of Wisconsin-Madison

Gerri C. LeBow Hall
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Philadelphia, PA 19104
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We examine how a discontinuous surge in an employee’s ability to create value influences her mobility and entrepreneurship decisions. We develop a theory proposing that an employee will be better able to appropriate value from a discontinuous capability shock in the context of another firm relative to her current employer. We further maintain that the effect will be moderated by the position of the employee within the knowledge space of the parent firm as this position affects the extent to which the employee contributes to the capabilities of the firm. Empirically, we exploit the reporting requirements mandated by the Lobbying Disclosure Act of 1995 to construct a unique employee-employer linked database that tracks employment of all registered lobbyists in the United States federal lobbying industry. Leveraging plausibly exogenous and large shocks to an employee’s ability to create value (i.e., changes to political connections in power) and a novel market-based measure of firm-employee knowledge distance, we report two main sets of findings. First, a discontinuous increase in employee capabilities increases the likelihood of both mobility to established firms and employee entrepreneurship, with the effect for the latter stronger than the former. Second, the effect of the increase on employee entrepreneurship but not mobility to established firms increases when employees are peripheral rather than central to the firm’s core knowledge. Together, our results are consistent with a value creation-value appropriation rationale where employees exit as a means to appropriate a greater portion of the value they anticipate creating.

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