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Unpacking functional alliance portfolios: How signals of viability affect young firms' outcomes

Authors

  • Manuela N. Hoehn-Weiss,

    Corresponding author
    1. School of Business, University of Washington Bothell, Bothell, Washington, U.S.A.
    • Correspondence to: Manuela N. Hoehn-Weiss, School of Business, University of Washington Bothell, 18115 Campus Way NE, Bothell, WA 98011–8246, U.S.A. E-mail: mnhw@u.washington.edu

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  • Samina Karim

    1. Strategy and Innovation, School of Management, Boston University, Boston, Massachusetts, U.S.A.
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Abstract

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 multi-function alliances within portfolios. Copyright © 2013 John Wiley & Sons, Ltd.

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