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 with...

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Bibliographic Details
Published in:Strategic management journal 2014-09, Vol.35 (9), p.1364-1385
Main Authors: Hoehn-Weiss, Manuela N., Karim, Samina
Format: Article
Language:English
Subjects:
Acquisitions
Acquisitions & mergers
alliance portfolio
Alliances
Biotechnology
Business entities
Capital investments
Corporate strategies
entrepreneurial venture
Entropy
Financial portfolios
Initial public offering
Initial public offerings
IPO
Liquidity
Organization theory
Portfolio analysis
Probability
signaling theory
Studies
Venture capital
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Summary: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 multifunction alliances within portfolios.
ISSN:0143-2095
1097-0266
DOI:10.1002/smj.2158