Abstracts
"R&D Alliances & Firm Performance: The Impact of Technological Diversity and Alliance Organization on Innovation." Academy of Management Journal (2007) Vol.50(2): 364-386
In this paper, I examine the impact of partner technological diversity and alliance organizational form on firm innovative performance. Using a sample of 463 R&D alliances in the telecommunications equipment industry, I find that alliances contribute far more to firm innovation when technological diversity is moderate, rather than low or high. Although this relationship holds irrespective of alliance organization, I find that hierarchical organization, such as an equity joint venture, improves firm benefits from alliances with high levels of technological diversity. Thus, alliance organizational form likely influences partner ability and incentives to share information, which affects performance.
"The Cost of Misaligned Governance in R&D Alliances." 2004 Journal of Law, Economics and Organization (2004) Vol.20(2): 484-526.
Transaction cost economics argues that appropriately aligning transactions with governance leads to more efficient outcomes. While empirical evidence demonstrates that firms choose governance consistent with transaction cost predictions, the performance implications of governance so selected are less well explored. Here, I examine the cost of inappropriate governance in the context of R&D alliances. Two types of inappropriate choice are evaluated: governance that gives rise to excessive contracting hazards or excessive bureaucracy. Using a sample of R&D alliances in the telecom equipment industry, I find that alliance governance selected according to transaction cost arguments improves collaborative benefits substantially over governance not so selected. Interestingly, governance imposing excessive bureaucracy reduces collaborative benefits more than governance imposing excessive contracting hazards does. These results provide empirical evidence of the cost of inappropriate governance and have implications for research on the limits of internal organization and that linking organizational form and innovation.
"Experience Effects and Collaborative Returns in R&D Alliances." Strategic Management Journal (2005) Vol.26(11): 1009-31
Focusing on the link between prior alliance experience and firm benefits from R&D collaborations, this paper explores whether firms learn to manage their alliances. While prior experience should increase collaborative benefits from the current alliance, I expect these returns: (1) to be most beneficial when alliance activities are more uncertain; and (2) to diminish at high levels of experience. Results from a sample of 464 R&D alliances in the telecom equipment industry generally match these expectations. The positive benefits of prior experience in complex alliances suggests that a broader set of alliance management processes allows the firm to manage situations of ambiguity more readily. The lack of cumulative benefits from prior experience appears to be partly due to knowledge depreciating over time, since only recent experience has a positive impact on collaborative returns. Overall, these results provide empirical evidence of the effect of prior experience on collaborative benefits, both directly and conditional on alliance characteristics, and have implications for learning to manage organizations more generally.
"Organizational Choice in R&D Alliances: Knowledge Based and Transaction Cost Perspectives." Managerial and Decision Economics (2004) Vol. 25: 421-36.
This study examines how firms choose organizational form for their R&D alliances. Encouraging cooperation in these alliances is often challenging, given the difficulties in knowledge sharing between partners and protecting the property rights over partner knowledge. Interestingly, knowledge based and transaction cost perspectives generate different hypotheses on alliance organization choice in this setting. When partner knowledge bases are very different, the risk of unintended transfer or leakage is reduced, yet the need for enhanced communication and knowledge sharing mechanisms remains undiminished. With a sample of 232 R&D alliances, I find more thorough support for the transaction cost hypothesis. Firms more likely select an equity joint venture as partner knowledge bases diverge and knowledge transfer becomes more difficult. When such knowledge bases are very different, however, firms are less likely to choose an equity joint venture over more contractual forms of alliance organization. Thus, these results provide empirical evidence on alliance organization choice and also have important implications for the fundamental question of why firms exist.
"The Scope and Governance of Knowledge-Sharing Alliances." (with Joanne Oxley) Strategic Management Journal (2004) Vol.25(8-9): 723-49.
Participants in research and development alliances face a difficult challenge: How to maintain sufficiently open knowledge exchange to achieve alliance objectives while controlling knowledge flows to avoid unintended leakage of valuable technology. Prior research suggests that choosing an appropriate organizational form or governance structure is an important mechanism in achieving a balance between these potentially competing concerns. This does not exhaust the set of possible mechanisms available to alliance partners, however. In this paper we explore an alternative response to hazards of R&D cooperation: reduction of the "scope" of the alliance. We argue that when partner firms are direct competitors in end product or strategic resource markets even "protective" governance structures such as equity joint ventures may provide insufficient protection to induce extensive knowledge sharing among alliance participants. Rather than abandoning potential gains from cooperation altogether in these circumstances, partners choose to limit the scope of alliance activities to those that can be successfully completed with limited (and carefully regulated) knowledge sharing. Our arguments are supported by empirical analysis of a sample of international R&D alliances involving electronics and telecommunications equipment companies.
"Do Prior Alliances Influence Contract Structure?" (with Michael Ryall) in Strategic Alliances: Governance and Contracts (2006) A. Arino & J. Reuer (eds.) London: Palgrave Macmillan.
We examine technology alliance contracts in detail, to explore if formal contract terms vary with prior alliances. Traditionally, formal governance has been viewed as the means to address the coordination difficulties inherent in alliances, via explicit contractual mechanisms. Formal contracting, however, is costly and not the only solution to the coordination problem. Relational governance, or discipline mechanisms outside the contract itself, can encourage cooperative behavior between partners. More specifically, repeated interactions can, through implicit mechanisms, reduce the threat of non-cooperative behavior in alliances. We use a case study approach to explore the contract mechanisms that reveal a possible interaction between contract structure and prior alliances. Based on our examination of contract terms, we devise a coding scheme to allow comparison of contracts empirically. Using our preliminary sample of 42 technology alliance contracts in the telecommunications equipment and microelectronics industries, we find that prior alliances are linked with contract structure. Interestingly, contracts are more complete or detailed when firms have prior alliances (whether with the same firm or other firms). This suggests that firms learn to draft more detailed contracts with prior alliance experience. In contrast, firms appear to draft less complete contracts when they have concurrent alliances with the same firm. Thus, concurrent alliances may represent the development of trust or the exchange of 'mutual hostages', both of which deter non-cooperative behavior and, thus, substitute for more formal governance.
"The Role of Lawyers in Strategic Alliances." Case Western Reserve Law Review (2003) Vol 53: 909-927.
In this paper, I examine organizational structure in strategic alliances, with a view to highlighting the role of lawyers in guiding such deals. This paper was prepared for the George A. Leet Symposium on Business Law.
"The Effects of the Uruguay Round: Empirical Evidence from US Industry," (with Jack Mutti and Bernie Yeung) (2000) Contemporary Economic Policy Vol. 18(1): 59-69.
This paper uses an event study to evaluate the anticipated results of the Uruguay Round on U.S. industry. Economists commonly use computable general equilibrium (CGE) models to predict the net economic efficiency effects of trade agreements. The event study method represents a complementary approach that relies upon stock price movements to assess how investors predict that an event, in this case the conclusion of the Uruguay Round, will affect industry profitability. The empirical estimates indicate that U.S. industries with comparative advantage (disadvantage) experience positive (negative) stock price reactions, reflecting an increase (a decrease) in the industry trade and investment opportunities as well as an increased (decreased) return to existing tangible and intangible assets. For the market as a whole the variation in stock prices does not differ significantly from zero, and the economic magnitude of industry gains and losses is small. These results are consistent with most CGE assessments and with the skeptical attitude that the real impact of the Uruguay Round Agreement remains uncertain.
"Formal Contracts in the Presence of Relational Enforcement Mechanisms: Evidence from Technology Development Contracts" (with Michael Ryall) (2009) Management Science Vol. 55(6): 906-25.
Formal contracting addresses the moral hazard problems inherent in inter-firm deals via explicit terms designed to achieve incentive alignment. Alternatively, when firms expect to interact repeatedly, relational mechanisms may achieve similar results without the associated costs. However, as we now know from a growing body of theoretical work, the resulting intuition – that relational mechanisms will be substituted for formal ones whenever possible – does not generally hold. The extent to which firms substitute relational mechanisms for formal ones in the presence of repeated interaction is an empirical question that forms the basis of this paper. We study a sample of 52 joint technology development contracts in the telecommunications and microelectronics industries and devise a coding scheme to allow empirical comparison of contract terms. Counter to the above intuition (but consistent with recent theoretical findings), we find that a firm’s contracts are more detailed and more likely to include penalties when it engages in frequent deals (whether with the same or different partners). Our results suggest complementarity between formal and relational contracts and have implications for optimal contracting, particularly in high technology sectors.
"Arms Race or Detente? How Interfirm Alliance Announcements Change the Stock Market Valuation of Rivals." (with Joanne Oxley and Brian Silverman) (2009) Management Science Vol. 55(8): 1321-37.
Most prior event studies suggest that the announcement of a new alliance is accompanied by a positive stock market response, with partners experiencing positive abnormal returns at the time an alliance is announced. This finding has been interpreted as evidence that alliances are effective vehicles for partners to acquire or access new skills and thus become stronger competitors. However, partners may also earn positive abnormal returns if alliances are used to shape competitive interactions, possibly attenuating competitive intensity in the industry as a whole. In this study we seek to disentangle these different mechanisms underlying value creation in alliances by examining how alliance announcements affect the stock market’s evaluation of allying firms’ rivals: If an alliance is expected to make partner firms more competitive, then this should lead to negative abnormal returns for partners’ rivals; if an alliance is expected to facilitate a reduction in competitive intensity, then this should lead to positive abnormal returns for rivals. Results from an event study analysis of R&D alliances announced in the global telecommunications and electronics industries during 1996-97 provides evidence consistent with competition attenuation in some alliances. Our research is thus an important counter to the increasingly narrow focus on learning and resource accumulation through alliances, and calls for a broader consideration of the roles and effects of collaboration, both for individual firms and for industry structure.
"Do Patent Citations Increase Patent Litigation? Empirical Evidence of Strategic Patenting in the Telecom Equipment Industry" (with Juan Alcacer)
Anecdotal evidence suggests that patent litigation has increased in the last 20 years as firms in knowledge intensive industries use patents more frequently to protect their knowledge stocks and managers focus on extracting new revenue streams from existing patent portfolios. For example, small firms within the semiconductor industry, which are “technology specialists”, increasingly use patent litigation to ensure exclusive control over proprietary technologies (Ziedonis, 2004). Further, firms are increasingly patenting not only to protect technologies from imitation, but also to use solely as a defense against possible future litigation (Shell, 2004). In spite of the strategic value that patents have, most research on innovation and strategy views patents as a measure of technological capabilities rather than as a strategic tool. Moreover, patent citations have been widely used as a signal of knowledge flows between and within firms. This interpretation, which minimizes the role that citations may have on patent litigation, has been challenged in recent papers. We follow this emerging literature and explore whether and how firms strategically cite competitors’ patents to minimize or provide a defense against infringement suits. By combining data on a firm’s citations of its competitors with information on patent litigation in the telecommunications equipment industry, we examine whether increased citations of a competitor increases or decreases the likelihood that a firm’s patent is litigated. We argue that those patents where examiners add a significant number of citations are more likely to be litigated in court because the added citations will flag competitors of the potential overlap with their patents. Based on previous research, we also expect that small firms are the most likely to file a suit, since a large proportion of their revenues are likely linked to individual patents. Successful defense of patents is likely more crucial to the survival of the small firm than to larger, more diversified firms. Via this examination, we hope to better understand the strategic motivations behind a firm’s patenting activities.
"Licensing University Inventions to Startups and Established Firms" (with Brent Goldfarb and Arvids Ziedonis)
Entrepreneurial firms have become increasingly prominent in the commercialization of university inventions. Yet little is known about the structure of the licensing agreements governing university technology commercialization, either to start-ups or more generally. In this study, we first apply the theoretical literature on licensing to generate predictions regarding contract structure. Under the presumption that start-ups have greater organizational uncertainty, we then explore the relevance of existing theoretical predictions to start-up licenses. To this end we observe detailed contract terms from 823 licensing agreements for 370 inventions licensed from Stanford University between 1989 and 2000. Our sample includes approximately 350 firms, 25% of which are start-ups. We anticipate that important differences exist in licensing to start-ups versus those to established firms. Apart from distinctions in the underlying technologies licensed, we expect differences between start-ups and established firms in the availability of complementary assets and the strength of incentives to commercialize the licensed technology to influence contract terms and structure. A goal of this paper is to (1) define differences between licenses to start-ups and established firms, particularly on exclusivity and royalty terms, (2) investigate correlations between these terms and royalty revenues (a performance metric), and (3) make suggestions for future theoretical developments based on our detailed examination of license contracts. The results of this study will improve our understanding the effect of incentive differences between start-ups and established firms and contribute to the dialogue on the role of large and small firms in technology development and commercialization.
Alliances under Ambiguity: Contract Detail as a Signal of Competence. (with Michael Ryall)
In this paper, we develop novel theory to explain contracting under ambiguity in strategic alliances. Empirical work on contracts raises several puzzles regarding how firms respond to incentive and coordination problems in their contracts, the understanding of which is vital to building theory that better maps onto what we observe in actual contracts. For example, some firms contract in great detail on actions to be taken over the course of an alliance, while other contracts are less detailed and instead specify outcomes and not actions. These differences appear to be correlated with the prior alliance experience of the partner firms, but are not, however, neatly consistent with a ‘learning by doing’ story. Based on the assumption that firms will value joint development projects differently based on their relevant prior experience, we generate some predictions on likely contract design. We expect that highly experienced firms partnering with other experienced firms are more likely to specify detailed actions required by partners, while firms with less experience will prefer to contract on outcomes. Our analysis also has implications for post alliance mergers; to compensate for the likely undervaluing of a project by inexperienced firms, veteran firms may make side payments in the form of equity stakes to ensure that a valuable project commences. Several empirical examples from our sample of joint technology development contracts illustrate these theoretical findings and are suggestive of a broader theory of contract development.
