Whether and when do alliance terminations pay off?

Engaging in multiple strategic alliances, a firm forms an alliance portfolio. While a larger alliance portfolio signals investors a firm's ability to exploit new opportunities and improve financial performance, having multiple alliances may also undermine financial performance due to a firm's limited ability to effectively manage these alliances. Announcing an alliance termination, a firm signals an intention to increase the effectiveness of a larger alliance portfolio. This article examines the extent to which alliance termination announcements create value for firms with multiple alliances. Building on the resource-based view of the firm and organizational learning literature, the paper hypothesizes a U-shaped relationship between alliance portfolio size and a firm's cumulative abnormal stock return following an alliance termination announcement. This effect is moderated by the amount of a firm's alternative resources and partner-specific experience that affect its ability to effectively manage multiple alliances. The results show that alliance termination announcements create firm value when an alliance portfolio is large.     

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

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.     

Alliance portfolios and firm performance: A study of value creation and appropriation in the U.S. software industry

This study reveals the multifaceted contribution of alliance portfolios to firms' market performance. Extending prior research that has stressed the value‐creation effect of network resources, it uncovers how prominent partners may undermine a firm's capacity to appropriate value from its alliance portfolio. Analysis of a comprehensive panel dataset of 367 software firms and their 20,779 alliances suggests that the contribution of network resources to value creation varies with the complementarity of those resources. Furthermore, the relative bargaining power of partners in the alliance portfolio constrains the firm's appropriation capacity, especially when many of these partners compete in the focal firm's industry. In turn, the firm's market performance improves with the intensity of competition among partners in its alliance portfolio. These findings advance network research by highlighting the trade‐offs that alliance portfolios impose on firms that seek to manage and leverage their alliances. Copyright © 2007 John Wiley & Sons, Ltd.     

GOVERNANCE PATTERNS IN BANKRUPTCY REORGANIZATIONS

Recent research has suggested that effective monitoring may assist firms in preventing an eventual bankruptcy filing. Audit committees, board subgroups responsible for monitoring and evaluating the financial health of the firm, may exhibit varying degrees of effectiveness in monitoring firms' decline as a function of their composition. Another monitoring body which has become increasingly important in the corporate community is institutional investors. This study investigates the extent to which audit committee composition and institutional investor holdings are related to the incidence and nature (prepackaged plans and length of time spent in reorganization) of firms bankruptcy filings. Results demonstrate no association between affiliated director representation on audit committees or institutional holdings and the incidence of bankruptcy. These two monitoring groups are, however, associated with the nature of bankruptcy filing. Both audit committee composition and the level of institutional holdings are significantly related to a prepackaged filing and the length of time spent in reorganization during the 5-year period preceding a bankruptcy filing.     

Ties' repeatedness,partners' social value,and alliance portfolio performance in emerging economy: The moderating roles of firm-government linkages

Repeatedly collaborating with previous partners or following peers' decisions are two primary strategies employed by emerging economy firms in selecting their alliance partners. As a result, the alliance portfolios of firms often feature a high level of ties' repeatedness and partners' social value—the extensiveness of a firm's partners being selected by other players in the industry. However, few studies examine whether these two features can result in superior alliance portfolio performance. Leveraging data collected from 566 fund product distribution alliances initiated by 62 fund companies in a 5-year period (2007–2011), we find that ties' repeatedness does not significantly improve alliance portfolio performance. In fact, a high level of social value of the current partners produces a negative effect. However, firms' linkages to governments can change the performance consequences of these two features. As a category of formal government–firm linkages, state ownership improves the positive effect of ties' repeatedness on alliance portfolio performance, while it strengthens the negative effect of partners' social value. As a category of informal linkages, political ties weaken the positive effect of ties' repeatedness on alliance portfolio performance but cannot significantly alleviate the negative effect of the social value of current partners.     

Interorganizational alliances and the performance of firms: a study of growth and innovation rates in a high‐technology industry

This paper investigates the relationship between intercorporate technology alliances and firm performance. It argues that alliances are access relationships, and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners. In particular, large firms and those that possess leading‐edge technological resources are posited to be the most valuable associates. The paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition. Particularly when one of the firms in an alliance is a young or small organization or, more generally, an organization of equivocal quality, alliances can act as endorsements: they build public confidence in the value of an organization's products and services and thereby facilitate the firm's efforts to attract customers and other corporate partners. The findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners. Consistent with the status‐transfer arguments, the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations. Copyright © 2000 John Wiley & Sons, Ltd.     

Network resource stocks and flows: how do alliance portfolios affect the value of new alliance formations?

We examine how new network resources accessed through alliance formations interact with network resources present in a firm's alliance portfolio. We test our theoretical model using event study methodology and data from the global air transportation industry. We find that the market rewards firms forming alliances that contribute resources that can be synergistically combined with firms' own resources as well as with network resources accessed through their alliance portfolios. Our results also indicate that the market penalizes firms entering into alliances that create resource combinations that are substitutes to resource combinations deployed by existing alliance partners. Copyright © 2011 John Wiley & Sons, Ltd.     

Surviving bear hugs: Firm capability,large partner alliances,and growth

In exploring the downsides of partnering with large firms, extant literature has typically focused on the external perspective and the alliance characteristics of small firms. We argue that jointly considering the internal dimension of firm capability together with the external perspective promises to yield a fuller understanding of the nature and consequences of a small firm's relationships with large partners. We analyze a longitudinal dataset on the alliance activities and growth of small, independent studios in the U.S. motion picture industry during 1990–2010. Our findings indicate that small firms that engage in higher levels of alliance activity with large partners, i.e., the major studios, realize lower growth benefits from their internal capability. Copyright © 2013 John Wiley & Sons, Ltd.     

Which ties matter when? the contingent effects of interorganizational partnerships on IPO success

This paper investigates the contingent value of interorganizational relationships at the time of a young firm's initial public offering (IPO). We compare the signaling value to young firms of having ties with two types of interorganizational partnerships: endorsement relationships such as those with venture capital firms and investment banks, and strategic alliance partnerships. We propose that, under different equity market conditions, potential investors in an issuing firm attend to different types of uncertainty; attention to these different types of uncertainty affects investors' perceptions of the relative value of a young firm's different kinds of endorsements and partnerships and, hence, IPO success. Results from a sample of young biotechnology firms show that ties to prominent venture capital firms are particularly beneficial to IPO success during cold markets, while ties to prominent investment banks are particularly beneficial to IPO success during hot markets; a firm's strategic alliances with major pharmaceutical/health care firms did not have such contingent effects. Implications for understanding the contingent value of interorganizational ties are discussed. Copyright © 2003 John Wiley & Sons, Ltd.     

Learning to collaborate through collaboration: How allying with expert firms influences collaborative innovation within novice firms

Research summary : Strategic alliances have been recognized as a means for firms to learn their partners' proprietary knowledge; such alliances are also valuable opportunities for partner firms to learn tacit organizational routines from their counterparts. We consider how relatively novice technology firms can learn intraorganizational collaborative routines from more experienced alliance partners and then deploy them independently for their own innovative pursuits. We examine the alliance relationships between Eli Lilly & Co. (Lilly), a recognized expert in collaborative innovation, and 55 small biotech partner firms. Using three levels of analysis (firm, patent, and inventor dyad), we find that greater social interaction between the partner firm and Lilly subsequently increases internal collaboration among the partner firm's inventors. Managerial summary : Can collaborating externally advance internal collaboration? Yes. Our research found that collaboration among scientists at small, early‐stage biotechnology firms significantly increased after these firms formed highly interactive R&D alliances with a large pharmaceutical company known for its expertise in such collaboration. It is well known that alliances help new firms learn specific new technologies and commercialize innovations. Our study broadens the scope of potential benefits of alliances. New firms can also learn collaboration techniques, deploying them internally to enhance their own abilities in collaborative innovation. Managers should take this additional benefit into consideration in developing their alliance strategies. Pursuing alliance partners with expertise in collaboration and keeping a high level of mutual interactions with partner firm personnel should be important considerations to extract this value. Copyright © 2015 John Wiley & Sons, Ltd.     

The impact of R&D‐specific factors on the attractiveness of small‐ and medium‐sized enterprises as partners vis‐à‐vis alliance formation in large emerging economies

This study examines the impact of research and development (R&D)‐specific factors in determining the likelihood of small‐ and medium‐sized enterprises (SMEs) from developed countries to be attractive partners vis‐à‐vis forming alliances with SMEs from large emerging economies (LEEs). This study is founded on the knowledge‐accessing theory of alliance formation, which emphasises the higher efficiency gains of knowledge application as opposed to knowledge generation. We extend this theory to SMEs on the basis that smaller firms, because of their resources constraints and drive to survive, are likely to use alliances to access external knowledge bases leading to new product development (NPD) opportunities because of the low feasibility of acquiring knowledge. As a mix of complex knowledge is necessary to develop most modern products and services, SMEs are also likely to adopt a more flexible operational approach and to accept compromises to forge knowledge‐accessing alliances. We illustrate this theoretical development using primary data collected from British and German biotechnology SMEs, declaring the intention prospectively to form alliances with their counterparts in Brazil. Binary logistic regression was used to identify the factors influencing the likelihood of a firm as an attractive alliance partner. Our results indicate that R&D‐specific factors influence the likelihood of firms to be attractive alliance partners. In particular, firms showing an in‐house innovation history focused on one or few products are more likely to be attractive alliance partners with LEE firms than those that do not. Another R&D‐specific predictor that enhances the chances of alliance partner attractiveness with LEE firms is the firm's focused searching and identifying capability relative to technology or equipment that demonstrates good prospects to improve the firm's line of products. A third predictor refers to the firm's awareness regarding non‐cost obstacles for its own technological development. Implications for policy makers and practitioners are also discussed.     

Alliance Concentration in Multinational Companies: Examining Alliance Portfolios,Firm Structure,and Firm Performance

Research summary: This article explores the distribution of alliances across firms' internal structure. Focusing on multinational companies, we examine the impact of alliance portfolio concentration—i.e., the extent to which alliances are concentrated within a limited number of geographic units—on focal firms' performance. Relying on Knowledge‐Based View (KBV) insights, we hypothesize that an increase in alliance portfolio concentration positively influences firm performance and that alliance portfolio size negatively moderates this relationship. Our empirical results enrich the emerging capability perspective on alliance portfolios, point to the relevance of conceptualizing focal firms in alliance portfolio research as polylithic entities instead of monolithic ones, and provide new insights into how firms create value by potentially recombining externally accessed knowledge. Managerial summary: In the setting of multinational companies, we examine whether alliance activities are concentrated in a limited number of subsidiaries or are highly dispersed across multiple subsidiaries. We find that, over time, firms exhibit different patterns in terms of alliance portfolio concentration. In addition, the results show that, for MNCs with a relatively small alliance portfolio, an increase in alliance portfolio concentration is positively related to their financial performance. However, when MNCs' alliance portfolios are relatively large, the relationship between alliance portfolio concentration and firm performance becomes negative. Jointly, these findings suggest that the distribution of alliances across firms' internal structure is an important factor in shaping potential knowledge recombination benefits from alliance portfolios. Copyright © 2017 John Wiley & Sons, Ltd.     

Determinants of Alliance Portfolio Complexity and Its Effect on Innovative Performance of Companies*

Alliance formation is often described as a mechanism used by firms to increase voluntary knowledge transfers. Access to external knowledge has been increasingly recognized as a main source of a firm's innovativeness. A phenomenon that has recently emerged is alliance portfolio complexity. In line with recent studies this article develops a measure of portfolio complexity in technology partnerships in terms of diversity of elements of the alliance portfolio with which a firm must interact. The analysis considers an alliance portfolio that includes different partnership types (competitor, customer, supplier, and university and research center). So far factors that determine portfolio complexity and its impact on technological performance of firms have remained largely unexplored. This article examines firms' decisions to form alliance portfolios of foreign and domestic partners by two groups of firms: innovators (firms that are successful in introducing new products to the market), and imitators (firms that are successful at introducing products which are not new to the market). This study also assesses a nonlinear impact of the portfolio complexity measure on firms' innovative performance. The empirical models are estimated using data on more than 1800 firms from two consecutive Community Innovation Surveys conducted in 1998 and 2000 in the Netherlands. The results suggest that alliance portfolios of innovators are broader in terms of the different types of alliance partners as compared to those of imitators. This finding underlines the importance of establishing a “radar function” of links to various different partners in accessing novel information. Specifically, the results indicate that foremost innovators have a strong propensity to form portfolios consisting of international alliances. This underlines the importance of this type of partnership in the face of the growing internationalization of R&D and global technology sourcing. Being an innovator or imitator also increases the propensity to form a portfolio of domestic alliances, relative to non‐innovators; but this propensity is not stronger for innovators. Innovators appear to derive benefit from both intensive (exploitative) and broad (explorative) use of external information sources. The former type of sourcing is more important for innovators, while the latter is more important for imitators. Finally, alliance complexity is found to have an inverse U‐shape relationship to innovative performance. On the one hand, complexity facilitates learning and innovativeness; on the other hand, each organization has a certain management capacity to deal with complexity which sets limits on the amount of alliance portfolio complexity that can be managed within the firm. This clearly suggests that firms face a certain cognitive limit in terms of the degree of complexity they can handle. Despite the noted advantages of an increasing level of alliance portfolio complexity firms will at a certain stage reach a specific inflection point after which marginal costs of managing complexity are higher than the expected benefits from this increased complexity.     

Do ongoing networks block out new friends? Reconciling the embeddedness constraint dilemma on new alliance partner addition

Research Summary: This study addresses a theoretical dilemma regarding how alliance network constraint (reflected by network cohesion) affects a firm’s alliance formation with new partners. Using a network pluralism approach, we separate a firm’s ego alliance network into two activity‐based networks—an exploratory network and an exploitative network—based on the primary value chain activity involved in each alliance. We argue that the cohesion of exploratory or exploitative networks has an inverted U‐shaped effect on the addition of new partners in the same activity‐based network, and a positive effect on the addition of new partners in the other network. Results based on data from the biotechnology industry largely support our predictions with one exception. Our study contributes to both scholarly understanding of network embeddedness and alliance practice. Managerial Summary: The structure of firms’ ongoing alliance networks may have paradoxical implications for their efforts to search for and form alliance with new partners. That is, when a firm’s alliance partners are tightly connected with each other, the cohesive network tends to both encourage and impede the focal firm to add new partners. We resolve this dilemma by showing that when a firm is deeply entrenched in a cohesive alliance network conducting a certain type of activities (e.g., R&D activities), it may not easily add new R&D alliance partners. However, it may still be able to escape from the cohesive R&D alliance network by seeking new partners conducting other activities (e.g., manufacturing activities).     

Resource ambidexterity through alliance portfolios and firm performance

Research summary : Partner resources can be an important alternative to internal firm resources for attaining dual and seemingly incompatible strategic objectives. We extend arguments about managing conflicting objectives typically made at the firm level to the level of a firm's alliance portfolio. Specifically, will a balance between revenue enhancement and cost reduction attained collectively through partner resources accessed via a firm's various alliances be similarly beneficial for firm performance? Additionally, how do strategic attributes of alliance portfolio configuration, specifically alliance portfolio size and partner resource scope, condition the balance‐performance relationship? Based on data from the global airline industry, we find support for the balance‐performance relationship, though such balance is less beneficial for firms in the case of access to a broader resource scope per partner . Managerial summary : Increasing revenue and reducing costs simultaneously can potentially enhance firm competitiveness. We highlight that an alliance strategy can be an important alternative to internal resources for attaining such dual strategic objectives, particularly when partner resources accessed through alliances are treated collectively as portfolios. We examine the importance of balancing product‐market extending and efficiency‐improving partner resources in the global airline industry as well as the impact of two alternate strategies for accessing resources through alliances: fewer partners with more resources per partner or more partners with fewer resources per partner. We find that resource balance at the portfolio level helps airlines improve performance. Our results also suggest that managers should be cautious of accessing too many resources through just a few partners . Copyright © 2015 John Wiley & Sons, Ltd.     

Growing with the market: How changing conditions during market growth affect formation and evolution of interfirm ties

Research Summary: Market conditions are known to matter for firm performance and growth. This study explores how changing levels of uncertainty and competition affect interfirm ties of entrepreneurial firms as markets transition from nascent to growth stage. Tracing six entrepreneurial game publishers during the growth stage of the U.S. wireless gaming market, the findings reveal that in a growth stage market, as uncertainty decreases, certain ties of entrepreneurial firms are terminated. First, existing partners may cut ties and become competitors after entering the market directly. This is a “winner's curse” as more successful firms are more likely to entice their partners to enter the market directly. Second, ties may be terminated as prominent firms that are “overwhelmed” with too many partners cut ties with low to mediocre performance, while their remaining partners enter a positive spiral of tie strength and performance. Finally, as uncertainty decreases, new firms may enter the market as competitors to prominent firms. While entrepreneurial firms with high‐ and low‐performing ties to prominent partners may find ties with these new entrants attractive, those with mediocre ties to few prominent partners find this move too risky and wait for a first mover to legitimate it. Overall, the findings show that changing levels of uncertainty and competition in growth stage markets can have different consequences for firms due to heterogeneity in their ties and power relative to partners. The findings provide several contributions to literature regarding the relationship among interfirm ties, firm performance, and market evolution. Managerial Summary: Based on interviews at six entrepreneurial game publishers in the United States and their partners, this study shows how changing levels of uncertainty and competition in growing markets can have different consequences for firms based on the different types of alliances in their portfolio and their power relative to partners. The findings highlight the importance of managing partners differently based on alliance type and goal of the partner. They advocate remaining flexible in alliance management as information asymmetries, intentions and bargaining power of partners can change and lead to abrupt alliance dissolution. They show that alliance portfolio management goes beyond a firm's capability of managing individual alliances, and provide a tool for managers to evaluate their alliance portfolios and take the necessary precautions.     

Windfalls of emperors' sojourns: Stock market reactions to Chinese firms hosting high‐ranking government officials

Research summary: We contribute to the corporate political activity (CPA ) literature by showing that investors value companies that host visits of high‐ranking government officials (P resident and P remier). We argue that investors may value host official visits for two reasons: (1) the signal received about possibility of firm accessing government‐controlled resources via promotion or protection; and (2) the certification effect from such high‐powered visitors elevating the firm's reputation and legitimacy. Results from an event study analysis of 84 high‐ranking government official visits in C hina from 2003 to 2011 indicate that investors responded positively to host firms as reflected by stock market performance. Furthermore, the greatest positive reactions accrued to firms experiencing weaker prior period financial performance and to firms that are privately compared to state‐controlled . Managerial summary: Do visits by high‐ranking government officials influence firm stock market performance? Studying a sample of C hinese public firms that hosted 84 visits by the C hinese P resident and the P remier from 2003 to 2011, we find that investors reacted positively to such visits compared with a group of non‐host firms from the same industry and with similar financial performance and size. In addition, firms with weaker prior financial performance and private firms benefit the most from hosting such visits. Our findings imply that hosting visits of high‐ranking government officials can signal future government‐controlled resource inflows and boost host firms' reputation and legitimacy . Copyright © 2016 John Wiley & Sons, Ltd.     

Technology alliances in emerging economies: persistence and interrelation in European firms' alliance formation

We analyse the patterns and determinants of technology alliance formation with partner firms from emerging economies with a focus on European firms' alliance strategies. We examine to what extent European firms' alliance formation with partners based in emerging economies is persistent – that is, to what extent prior collaborative experience determines new alliance formation – and we compare this pattern with alliance formation with developed country partners. Second, we examine to what extent prior engagement in international alliances with partners from developed countries increases the propensity to form technology alliances with partners based in emerging economies, and vice versa (interrelation). We find that both persistence and interrelation effects are present, and that they are generally not weaker for emerging economy alliances. Alliance formation with Indian and Chinese firms is significantly more likely if firms have prior alliance experience with Japanese firms. The findings suggest that building on their prior international alliance experience firms extend their alliance portfolios across both developed and emerging economies, increasing the geographical diversity of their alliance portfolios.     

Bankruptcy as a deliberate strategy: Theoretical considerations and empirical evidence

Bankruptcy and bankruptcy reorganizations have been identified as remedies for financial distress, but there is little agreement on their value to firms, managers, and the general economy. This paper provides a brief review of proposed bankruptcy strategies and some alternative views about their costs and benefits followed by an empirical study of the outcomes of 73 bankruptcies and subsequent reorganization efforts. The evidence suggests that there are few successful reorganizations, bankruptcy is a costly response to financial distress, and managerial choice in bankrupt firms is highly constrained by forces external to the firm. The diversity of stakeholder interests limits the value of global judgements about success or failure of bankruptcy strategies. Firm size dominates all other factors in predicting success in completing the reorganization process. Delayed filings primarily reflect failed efforts to avoid bankruptcy, not deliberate strategies. Reasons for the use of bankruptcy in spite of its high costs are discussed.     

Choose to Fight or Choose to Flee? A Network Embeddedness Perspective of Executive Ship Jumping in Declining Firms

Research summary: Executives in declining firms may engage in ship‐jumping behavior (i.e., voluntarily move to new employers before the failure occurs) to avoid the stigma of failure. However, it is unclear how executives decide whether or not to jump ship. Building on a network embeddedness perspective, we highlight how three network‐based indicators (i.e., executive social capital, the social capital of other peers in the declining firm, and the declining firm's alliance network) influence the executive‐level ship‐jumping decision by shaping its benefits and opportunity costs. Using data from executives at failing firms in China, we find support for our hypothesized relationships. Our research provides important insight into the network mechanisms driving the ship‐jumping decision. Managerial summary: Executives at failing firms have a choice: stay and attempt to rescue the firm from failure or exit and avoid the stigma of the failure (i.e., jump ship). Yet, little is known about what factors affect this choice. We propose that social capital plays an important role in the decision. Our evidence from specially treated (*ST) public firms in China finds that ship jumping is lowest at low and high values of social capital, and highest at moderate levels of social capital (an inverted U‐shaped relationship). In addition, higher levels of peer social capital (in the declining firm) as well as a well‐established firm‐level alliance network discourage the ship‐jumping choice. Copyright © 2017 John Wiley & Sons, Ltd.