Stock Market and Network Influence on Alliance Formation: Evidence from the Biopharmaceutical Industry

Abstract

In this article we posit that firms signal resource availability (stock returns and risk) and favorable reputation (network of ties) to attract alliance partners. We use stock market and network characteristics to predict a firms’ propensity to engage in product alliances. Using 1,877 observations of 302 biopharmaceutical firms over a twenty-year period, we find that increase in stock returns and a decrease in stock risk is associated with an increase in firms’ product alliances. The position of the firm in its network improves product alliance formation, whereas the structure of the overall network (density) has no such effect.