Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes

Abstract

This article investigates how alliance portfolio composition affects young firms' outcomes. Drawing on signaling theory, we propose how alliance portfolio composition—number, functional domains (R&D, manufacturing, and marketing), and single‐purpose or multi‐purpose nature of alliances within the portfolio—may affect a firm's likelihood of achieving a liquidity event (IPO or acquisition). We study 8,600 U.S.‐based, VC‐backed firms during the period of 1990 to 2002 from 10 industry sectors. We find that alliance portfolios (to a certain extent) increase a firm's liquidity event likelihood. Further, firms with heterogeneous alliance portfolios, including portfolios emitting greater efficiency signals versus endorsement signals, are more likely to experience an IPO versus acquisition. Our findings lend support to the value of multi‐function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.

The influences of capital market munificence on new-venture alliance formation in emerging industries

“…Existing research in this area does not offer consistent guidance (Chan et al, 1997;Das et al, 1998;Levitas and McFadyen, 2009). Alliance multiplexity, size, and functional scope may all influence the attractiveness of new ventures to their investors (Hoehn-Weiss and Karim, 2014;Khanna, 1998;Khanna et al, 1998;Oxley and Sampson, 2004). For example, R&D alliances might influence potential investors' valuations of a new venture more or less than marketing alliances do.…”

Flow Signals: Evidence from Patent and Alliance Portfolios in the US Biopharmaceutical Industry

“…In line with prior studies, APD is conceptualized as the variety of alliances across R&D, manufacturing, and marketing value chain functions (Bruyaka and Durand, ; Hoehn‐Weiss and Karim, ). To measure APD we first constructed a firm's alliance portfolio in year t by including the count of its active alliances in each alliance category (i.e., R&D, manufacturing, and marketing) in the last five years ( t‐1 to t‐5) .…”

“…Ozcan and Overby () using a cognitive model of stock market reaction convincingly demonstrated that a firm's alliance portfolio is a fundamental factor shaping market evaluations. Similarly, Hoehn‐Weiss and Karim () reasoned that just as an individual alliance is a signal of legitimacy, a portfolio of alliances is an even stronger signal of legitimacy.…”

“…For example, Colombo et al () established that patent portfolio size and prestige affect the number of available partners. Hoehn‐Weiss and Karim () found that signals from APD are an indicator of legitimacy. Zhang and colleagues (2007) found that patent portfolio diversity signals that a biopharmaceutical firm is familiar with diverse technologies, capable of exploring new areas, and that its technological knowledge can be applied in a variety of contexts.…”

“…The market reacts more positively to firm actions that mobilize resources as opposed to the accumulation of resources, which may not be used (Nohria and Gulati, ). Flow signals from a diverse alliance portfolio indicate that a firm is using resources (both its own resources and partners’ resources) across different business functions, which enhances the confidence market observers have about rent generation outcomes (Hoehn‐Weiss and Karim, ). Thus, some of the uncertainty and negative effect associated with a diverse patent portfolio (see H1) is suppressed since, as we noted earlier, PPD precedes and positively influences APD and APD is a strong indicator of a firm's strategic commitment to commercialization (McGrath and Nerkar, ; Ndofor et al, ).…”