Alliances and governance in biotechnology: Firm level effects on performance

Despite the importance of alliances in industries such as biotechnology, few studies have addressed how performance outcomes are affected by firm-level propensities toward alliance formation and alliance governance. We use transaction cost economics and real options reasoning to develop and test how uncertainties in alliance transactions affect firm performance, and how governance choices moderate performance outcomes. Data obtained on 827 biotechnology alliances among 353 firms from 1995 through 2003 were used in an empirical test of our model using hierarchical regression in a two stage approach. Results support our argument that firm-level performance is negatively related to firm-level uncertainties presented by the firm\u27s alliances, and the technological diversification of the alliance portfolio. We find that the choice of governance form moderates these performance effects in distinctive ways. We discuss the joint influence of transaction cost, real options reasoning, and alliance portfolio diversification and offer implications for theory, research, and management practice