Firms can govern their alliances through contractual agreements or equity joint ventures, the latter involving the shared ownership of a newly formed legal entity. This paper argues that the governance choice in a new alliance can be a lever for a firm to manage interdependencies in its alliance portfolio. We examine two related ideas. The first is that the choice of governance structure for a new alliance depends on the composition of a firm's alliance portfolio. The second is that this governance choice has implications for the nature of the firm's innovation outputs. Using data on U.S.-listed dedicated biotechnology firms, we find that firms are more likely to govern a new alliance through a contractual agreement when the accessed resources are similar to the resources available in their existing alliance portfolio. This choice also increases innovation in these similar resource domains. In contrast, firms are more likely to choose an equity joint venture when the accessed resources are complementary to their existing alliance portfolio, a choice that increases innovation in these complementary resource domains. Our findings extend the alliance-portfolio perspective by linking portfolio interdependencies to the governance choices in new alliances and their implications for innovation. • Firms use governance choice in new alliances to manage alliance portfolio interdependencies. • Contracts are preferred when accessing resources similar as in existing alliances. • Joint ventures are preferred when accessing resources complementary to existing alliances. • Governance choice influences the types of innovation outputs the firm achieves. • Contracts foster innovation in similar domains and JVs in complementary domains.
Frankort et al. (Thu,) studied this question.