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The Importance of Alliances in Firm Capital Structure Decisions: Evidence from Biotechnology Firms
Author(s) -
Zambuto Fabio,
Lo Nigro Giovanna,
O'Brien Jonathan P.
Publication year - 2017
Publication title -
managerial and decision economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.288
H-Index - 51
eISSN - 1099-1468
pISSN - 0143-6570
DOI - 10.1002/mde.2735
Subject(s) - alliance , leverage (statistics) , financial distress , capital structure , business , strategic alliance , value (mathematics) , capital (architecture) , enterprise value , finance , economics , industrial organization , financial system , debt , archaeology , machine learning , political science , computer science , law , history
Building on finance research, we argue that the ex post hazards arising from alliance formation depend upon the firm's financial condition. Financial distress jeopardizes the continuity of an alliance and the value of the investments involved. Thus, firms should reduce leverage to signal continued commitment and to induce investments from alliance partners. Accordingly, we find that a firm's current alliance propensity predicts its subsequent capital structure decisions and that this relationship is most pronounced in the presence of other exchange hazards. Our paper contributes to alliance research and to the growing literature discussing the strategic consequences of capital structure. Copyright © 2015 John Wiley & Sons, Ltd.