The effect of uncertainty and asset co‐specialization on governance in biotechnology alliances

We explore transaction cost economics (TCE) and real option (RO) rationales for alliance governance and find the predictive power of each depends upon the type of uncertainty confronted. Our review of alliance activity from 1995 through 2000 for 642 alliances confirms that governance is influenced directly by partner, task, and technological uncertainty and by interactions among asset co‐specialization, partner uncertainty, and task uncertainty. Consistent with TCE, co‐specialized assets increased the likelihood of hierarchical governance. Partner and task uncertainty increased this effect. Consistent with RO, we find technological uncertainty decreased the likelihood of hierarchical governance. Copyright © 2005 John Wiley & Sons, Ltd.     

Restructuring diversified telecom operators

The paper examines restructuring cycles among diversified major telecom operators from two different perspectives, the governance deficiency perspective of agency theory and the governance efficiency perspective of transaction cost economics, the former being less consistent with the spirit of recent pro-competitive regulatory reforms than the latter. This restructuring cycle describes how incumbent operators grew larger and more diversified during the telecom boom before they were transformed into more efficient scale and scope either by economizing managers or by market forces along with actively intervening owners and bondholders during the subsequent telecom bust. A cycle whose expansion phase is characterized by highly acquisitive companies expanding into non-related activities followed by a delayed contraction phase where overdiversified companies are being restructured by market forces and intervening owners and bondholders is consistent with the reform-non-compliant governance deficiency thesis of agency theory. A cycle whose expansion phase is characterized by acquisitive companies expanding into related activities followed by a contraction phase where companies are restructured by their own managers after having realized that previously acquired assets have become more redeployable and their services more tradable is consistent with the reform-compliant governance efficiency thesis of transaction cost economics. Now, in the aftermath of the contraction phase of the business cycle, more narrowly focused incumbents are once again ready for another round of acquisitive expansion. Anecdotal evidence from five restructuring cases, along with available secondary information about the development of the industry, seems to support the reform-noncompliant governance deficiency thesis of agency theory rather than the reform-compliant governance efficiency thesis of transaction cost economics.     

有限外部化:技术进步对企业边界的影响

本文从技术进步的角度动态地研究企业组织边界的变动。通过理论上论证快速的技术进步对内部组织治理与外部交易活动的影响，我们认为快速的技术进步既增大了企业内部化的不确定性，也导致了市场交易费用的降低。但是，由于技术进步并不能完全消除市场交易活动中的不确定性，所以，我们提出了在快速的技术变革条件下，企业边界变动是有限外部化的理论假设。并选择了1998—2002年间我国各省市区高新技术产业发展与外包活动作为一个分析案例，验证的结果有力地支持了我们提出的理论假设。     

The governance of external research: empirical test of some transaction-cost related factors

In this article, we analyse the impact of some transaction-cost related factors on the governance of external research. We study how transaction costs vary according to specific attributes of the R&D project, such as the stage in the R&D process, the number of partners implied, the number of technological fields covered, the geographical scope and the duration of the project. According to transaction cost theory, we hypothesize that the higher the transaction costs relative to market governance, the more it is likely that the governance structure will move towards hierarchy.     

Choice of organizational form in the life insurance industry: New Zealand evidence

Two forms of ownership structure characterize the insurance industry—the stock company owned by shareholders and the mutual form which is owned by its policyholders. The academic literature suggests that ownership structure is dependent upon the efficiency of the endogenous contracting mechanisms and governance structures in firms. Mutuals are predicted to exist and successfully compete with stock companies in insurance markets because they merge the ownership-customer functions and introduceex-ante contracting mechanisms andex-post modes of governance which restrict managerial discretion. Drawing a framework from transaction cost theory, this study tests empirically the proposition that choice of ownership structure in the life insurance industry is related to contracting mechanisms and governance structures in the firm. Individual cross-sectional logistic regression models are estimated using 1991–1993 data gathered from New Zealand's life insurance industry. Consistent with expectations our results suggest that mutuals are more likely to have higher asset specificity than stock companies. By contrast, stocks appear to be more reinsured and incur higher governance expenditures than mutual companies. Furthermore, contrary to what was hypothesized, our findings indicate that mutuals may be bigger than stock companies. Therefore, overall the empirical evidence does not support the predictions drawn from transaction cost theory.The authors are lecturers, Department of Accounting and Finance, University of Glasgow, and Department of Accountancy, Massey University, New Zealand, respectively.The authors thank Lars Hassel, Leung Hing-Man, Bill Maughan, Mike Pickford, Kulwant Singh and two anonymous reviewers for their comments on original drafts of this paper. However, they are solely responsible for any errors or omissions that remain. They also appreciate the cooperation of members of New Zealand's life insurance industry for supplying information. Finally, the financial support of Price Waterhouse (Wellington, New Zealand) is gratefully acknowledged.     

Executive preferences for governance modes and exchange partners: An information economics perspective

This study investigates how executives address information asymmetry and adverse selection surrounding international joint ventures (IJVs) and acquisitions. We argue that executives can address such exchange hazards not only through their governance decisions, as prior research indicates, but also through their selection of exchange partners. Our experimental design complements prior research on firms' governance choices in three ways: (1) by incorporating multiple potential exchange partners rather than taking a single partner as given for a realized transaction; (2) by accommodating multiple potential entry modes to address interdependencies across governance structures; and (3) by providing direct evidence on executives' assessments of IJVs and acquisitions. We join together organizational governance research and decision‐making research on IJV partner selection, two literatures that have largely developed separately. Copyright © 2013 John Wiley & Sons, Ltd.     

Governance and uncertainty: the trade-off between administrative control and commitment

This study elaborates upon the motives for initiating equity-based collaborations vs. acquisition of another firm already having a desired technology. We characterize both minority direct investments and joint ventures as options to defer either internal development or acquisition of a target firm. In domains where learning about growth opportunities dominates investment activity, this incremental mode of governance economizes on the cost of committing resources to a technology with an uncertain value. Using a sample of 402 transactions in the biotechnology industry, we find strong support for the theoretical model. The findings suggest that the cost of commitment in the face of technological uncertainty may offset the administrative benefits of hierarchical governance. © 1998 John Wiley & Sons, Ltd.     

Chief executive scanning,environmental characteristics,and company performance: An empirical study

Chief executives in 50 manufacturing companies were interviewed about the perceived strategic uncertainty in six environmental sectors, and the frequency and mode of scanning used for each sector. The findings suggest that customer, economic and competitor sectors generated greater strategic uncertainty than technological, regulatory and sociocultural sectors. When sector uncertainty was high, executives reported greater frequency of scanning and greater use of personal information sources. Chief executives in high-performing companies scanned more frequently and more broadly in response to strategic uncertainty than their counterparts in low-performing companies.     

Technology development mode: a transaction cost conceptualization

Technology alliances have emerged in the past decade as a significant mode for the development of innovation. The present research assesses the factors explaining whether firms will engage in such technology alliances or utilize the more traditional mode of internal R&D. The hypotheses stem from a transaction cost conceptualization. Results suggest that firms which pursue technology alliances are likely to have less commitment to product category-specific assets, to face higher technological uncertainty, to be more capable at measuring innovation performance, to have more successful technology alliance experiences, and to compete in lower growth product categories. © 1998 John Wiley & Sons, Ltd.     

高管特征、企业异质性与企业技术创新绩效——来自风电产业上市公司的经验数据

技术创新是解决目前风电产业产能过剩、缺乏核心技术发展瓶颈的重要路径,最新文献已经发现高管特征和企业异质性对企业技术创新绩效的影响,但研究结论尚存在分歧。本文以沪深两市风电产业上市公司为研究对象进行实证研究发现：高管持股和女性高管对风电企业技术创新绩效具有显著的促进作用;国有风电企业和省会城市风电企业的技术创新优势会因内部治理结构短板而丧失。将企业异质性作为调节变量进一步研究发现,国有企业中高管持股和女性高管对风电企业技术创新绩效的正向影响更加显著;区位在省会企业中高管持股和女性高管对风电企业技术创新绩效的正向影响更加显著。     

Role of search for domain knowledge and architectural knowledge in alliance partner selection

Research Summary: The literature on technological alliances emphasizes that search for knowledge drives alliance formation. However, in conceptualizing technological knowledge, prior work on alliances has not made a distinction between domain knowledge—knowledge that firms possess in distinct technological domains—and architectural knowledge—knowledge that firms possess about how to combine elements from different technological domains. We argue that firms seek partners that are similar in domain knowledge to deepen their knowledge, and partners that are dissimilar in architectural knowledge to broaden their knowledge. Our results indicate that the likelihood of alliance formation increases when two firms are similar in domain knowledge and dissimilar in architectural knowledge. Further, our results show that these effects are positively moderated by the degree of decomposability of a firm's knowledge base. Managerial Summary: In dynamic environments, companies need to continually deepen and broaden their technological knowledge, and they often look for alliance partners who can provide them that knowledge. For knowledge deepening, companies are more likely to form alliances with those companies that have expertise in similar technological fields. For knowledge broadening, they are more likely to form alliances with those companies that have expertise in the same technological fields, but have different recipes for combining knowledge from those fields. Furthermore, a company with a modular knowledge base is more likely to seek a partner that has expertise in similar technological fields or whose recipes for combining knowledge from different technological fields are different from the recipes it has.     

Testing alternative theories of the firm: transaction cost,knowledge-based,and measurement explanations for make-or-buy decisions in information services

Firms boundary choices have undergone careful examination in recent years, particularly in information services. While transaction cost economics provides a widely tested explanation for boundary choice, more recent theoretical work advances competing knowledge-based and measurement cost explanations. Similar to transaction cost economics, these theories examine the impact of exchange attributes on the performance of markets and hierarchies as institutions of governance. These theories, however, offer alternative attributes to those suggested by transaction cost economics or offer alternative mechanisms through which similar attributes influence make–buy choices. Traditional empirical specifications of make–buy models are unable to comparatively test among these alternative theories. By developing and testing a model of comparative institutional performance rather than institutional choice, we examine the degree of support for these competing explanations of boundary choice. Hypotheses are tested using data on the governance of nine information services at 152 companies. Our results suggest that a theory of the firm and a theory of boundary choice is likely to be complex, requiring integration of transaction cost, knowledge-based, and measurement reasoning. © 1998 John Wiley & Sons, Ltd.     

Relational governance as an interorganizational strategy: An empirical test of the role of trust in economic exchange

We develop a model of relational governance as a specific form of interorganizational strategy that is distinct from the traditional modes of markets and hierarchies. We conceptualize this form of strategy in terms of structural and processual dimensions and derive a model of its determinants through arguments drawn from transaction cost economics and the sociological exchange literature. Hierarchical regression modeling is employed to test the theoretical model on data collected from a sample of 329 independent insurance agencies. We include the relational variable of trust and demonstrate that the combined model explains relational governance better than a model with the traditional determinants of governance form alone. Further, we observe that governance structure and process are related and discuss implications of the dynamic link between them. Directions for extensions are developed for strategic management research and practice.     

The effect of cultural differences in perceptions of transactions costs on national differences in the preference for international joint ventures

This study presents a theoretical explanation of why the cultural trait of power distance represents greater perceptions of transaction costs and lower perceptions of governance costs across societies. It demonstrates that cultural differences in perceptions of transactions and governance costs as represented by Hofstede's (1980) power distance index explain national differences in the preference for international joint ventures after market size, government limitations on sole ownership and uncertainty avoidance have been controlled. The study concludes that cultural differences in transaction costs provide an important extension to the transaction costs theory of joint ventures.     

Is regulatory adoption ceremonial? Evidence from lead director appointments

Research Summary: Regulatory bodies often wrestle with the thorny question of whether to mandate a governance practice or allow for organic adoption. While mandates afford rapid diffusion, we theorize that they also result in ceremonial adoptions. Leveraging a quasi‐natural experiment, we compare adoption outcomes for a governance practice—lead director adoption—that was mandated by the NYSE but not the NASDAQ. We find that NYSE firms are more likely than NASDAQ firms to have installed a lead director as a symbolic management tactic, so their lead directors are less effectual. We also find that transient institutional investors are deceived by this symbolic management, but dedicated institutional investors are not. Managerial Summary: Shareholders and analysts often desire to see companies introduce strict governance measures, such as proxy access and independent boards. Consequently, regulatory bodies often wrestle with the thorny issue of whether and when to mandate such practices for all companies. What they might not realize is that mandates may not work as well as they seem. Although more companies adopt reform under a mandate, they do so merely as a symbolic gesture. We look at one governance reform—appointing a lead director—finding that companies who introduce this reform as a result of a mandate appoint someone that is relatively toothless. We also find, though, that savvy investors are not actually fooled by this tactic and will trade out of firms that attempt such symbolic management.     

Offshore outsourcing of services: An evolutionary perspective

Offshore outsourcing is gaining increasing importance and attention in both theory and practice. The purpose of this research is to use nine in-depth case studies to analyze the evolution of offshore services outsourcing with regard to how expectations and governance structures change over time. Five testable propositions are presented, building on institutional theory, transaction cost, and resource-based perspectives. The cases demonstrate that offshore outsourcing is initiated because of increasing internal and external pressure to conform and reduce costs. Moreover, companies “chase” efficiency improvements in other geographic locations. But after reducing costs, companies discover more strategic benefits such as the potential to increase quality and market share. Importantly, as buyer–supplier relationships move from tactical to more strategic, expectations and governance structures change.     

Do make or buy decisions matter? The influence of organizational governance on technological performance

This paper investigates how firms' decisions to outsource or internalize production affect their technological performance. While several popular arguments and some anecdotal evidence suggest a direct association between outsourcing and technological performance, the effects of firms' governance decisions are likely to be contingent upon several specific attributes underlying a given exchange. This paper first demonstrates how standard performance models can improperly suggest a positive relationship between firms' outsourcing decisions and their technological performance. Models that account for firm‐ and transaction‐specific features are then presented, which indicate that neither outsourcing nor internalization per se result in superior performance; rather, a firm's technological performance is contingent upon the alignment between firms' governance decisions and the degree of contractual hazards. Copyright © 2002 John Wiley & Sons, Ltd.     

Interorganizational Imitation and Acquisitions of High‐tech Ventures

Research summary: This article shows that there is a positive association between the changes in the number of prior acquisitions or the changes in the prominence of prior acquirers within the focal venture's subfield and the venture's likelihood to be acquired. Results are in line with the existence of frequency‐ and trait‐based imitation in acquisitions targeting tech ventures. More importantly, these positive associations are more pronounced when (a) exogenous technological uncertainty within the venture's subfield increases and (b) there are significant differences between the focal venture's and acquirer's technological resources. Our findings are in accord with the suggestion that uncertainty in the technology domain is an important boundary condition in moderating the extent of imitation in technology acquisitions. We also discuss alternative explanations and implications. Managerial summary: The findings of this article suggest that when deciding whether or not to acquire a technology venture (i.e., startup company in a high‐tech industry), managers infer information by observing other acquisitions in the venture's subfield to make assessments about the underlying value of the potential targets. We also find that receiving some informational cues from previous acquisitions would be more useful when there is high technological uncertainty in the potential target's subfield about which technologies will be dominant, and when the potential acquirer and the tech venture operate in dissimilar technological areas. This article shows that imitation can be one way to deal with decision‐making under uncertainty when making acquisition decisions in high‐tech environments. Copyright © 2017 John Wiley & Sons, Ltd.     

Losing sight of the forest for the trees? Productive capabilities and gains from trade as drivers of vertical scope

Focusing on proving or disproving transaction cost economics has led to a relative neglect of some key drivers of vertical scope, such as differences in productive capabilities (as opposed to capabilities of governance). We consider how productive capability differences can shape vertical scope through gains from trade. Using highly detailed data from the mortgage banking industry, we find productive capabilities to be a key determinant of the make‐vs.‐buy decision. Our analysis also suggests firms' attempts to leverage a comparative advantage can also lead to the use of mixed governance modes (both ‘make’ and ‘buy’ in a particular part of the value chain). We conclude that the distribution of productive capabilities along the value chain, catalyzed by transaction costs, ultimately drives vertical scope. Copyright © 2005 John Wiley & Sons, Ltd.