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Flow Signals: Evidence from Patent and Alliance Portfolios in the US Biopharmaceutical Industry

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  • Turanay Caner
  • Olga Bruyaka
  • John E. Prescott

Abstract

Integrating signalling theory and the portfolio diversity literature, we theorize that diversity in a firm's patent and alliance portfolios sends contrasting flow signals impacting its market value in a nuanced way. Diversity in an alliance portfolio mediates the patent portfolio diversity – market value relationship by suppressing the negative effect of patent portfolio diversity creating an overall positive effect. We test our mediation model on a longitudinal set of 225 US biopharmaceutical firms that were awarded 17,078 patents and participated in 37,744 alliances between 1990 and 2006. Our theory and findings contribute three novel insights. First, we demonstrate the value of a temporal lens in explaining why diversity in a firm's patent and alliance portfolios send flow signals that establish expectations among market observers and have performance implications. Second, establishing that patent and alliance portfolio diversity are temporally sequenced provides compelling evidence for the value of studying multiple types of portfolios, their temporal relationships and effects on firm outcomes. Third, since diversity in a firm's portfolios can send contrasting flow signals conditioned on the cognitive demands and proximity involved in interpreting the signals, firms that do not maintain a ‘signalling fit’ with market observers increase the probability of unintentional negative signalling effects.

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  • Turanay Caner & Olga Bruyaka & John E. Prescott, 2018. "Flow Signals: Evidence from Patent and Alliance Portfolios in the US Biopharmaceutical Industry," Journal of Management Studies, Wiley Blackwell, vol. 55(2), pages 232-264, March.
    • Handle: RePEc:bla:jomstd:v:55:y:2018:i:2:p:232-264
    DOI: 10.1111/joms.12217
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    Cited by:

    1. Cheng‐Wei Wu & Jeffrey J. Reuer, 2021. "Acquirers’ Reception of Signals in M&A Markets: Effects of Acquirer Experiences on Target Selection," Journal of Management Studies, Wiley Blackwell, vol. 58(5), pages 1237-1266, July.
    2. Gnekpe, Christian & Jimenez, Alfredo, 2023. "Smoke signal: When firms' patent strategy and local patent protection system affect equity stakes in cross-border acquisitions," Journal of International Management, Elsevier, vol. 29(6).
    3. Su, Taoyong & Yu, Yuzhu & Chen, Yongheng & Hou, Wanrong, 2023. "On or off: The triggering effect of underperformance duration on cooperative innovation," Technovation, Elsevier, vol. 126(C).
    4. Chaturvedi, Tuhin & Prescott, John E., 2020. "Dynamic Fit In An Era Of Ferment: Product Design Realignment And The Survival-Enhancing Role Of Alliances And Acquisitions," Research Policy, Elsevier, vol. 49(6).
    5. Thakur-Wernz, Pooja & Bruyaka, Olga & Contractor, Farok, 2022. "Sourcing portfolio diversity in new product development: Antecedents and performance implications," Journal of Business Research, Elsevier, vol. 150(C), pages 179-193.
    6. Ad Jong & Nicolas A. Zacharias & Edwin J. Nijssen, 2021. "How young companies can effectively manage their slack resources over time to ensure sales growth: the contingent role of value-based selling," Journal of the Academy of Marketing Science, Springer, vol. 49(2), pages 304-326, March.
    7. Ghosh, Anindya & Klueter, Thomas, 2022. "The role of frictions due to top management in alliance termination decisions: Insights from established bio-pharmaceutical firms," Other publications TiSEM 9faa19d2-d1a8-4490-befb-d, Tilburg University, School of Economics and Management.
    8. Yuanyuan Dong & Zepeng Wei & Tiansen Liu & Xinpeng Xing, 2020. "The Impact of R&D Intensity on the Innovation Performance of Artificial Intelligence Enterprises-Based on the Moderating Effect of Patent Portfolio," Sustainability, MDPI, vol. 13(1), pages 1-17, December.
    9. Ruey‐Jer “Bryan” Jean & Daekwan Kim, 2021. "Signalling Strategies of Exporters on Internet Business‐to‐Business Platforms," Journal of Management Studies, Wiley Blackwell, vol. 58(7), pages 1869-1898, November.
    10. Koval, Mariia & Iurkov, Viacheslav & Benito, Gabriel R.G., 2024. "The interplay of international alliance and subsidiary portfolios: Implications for firms’ innovation and financial performance," Journal of World Business, Elsevier, vol. 59(1).
    11. Joseph P. Broschak & Emily S. Block & Sharon Koppman & Idris Adjerid, 2020. "Will We Ever Meet Again? The Relationship between Inter‐Firm Managerial Migration and the Circulation of Client Ties," Journal of Management Studies, Wiley Blackwell, vol. 57(6), pages 1106-1142, September.
    12. Shuman Zhang & Changhong Yuan & Yuying Wang, 2019. "The Impact of Industry–University–Research Alliance Portfolio Diversity on Firm Innovation: Evidence from Chinese Manufacturing Firms," Sustainability, MDPI, vol. 11(8), pages 1-16, April.
    13. Joseph J. Cabral & Chaoqun Deng & M. V. Shyam Kumar, 2020. "Internal Resource Allocation and External Alliance Activity of Diversified Firms," Journal of Management Studies, Wiley Blackwell, vol. 57(8), pages 1690-1717, December.
    14. Shuman Zhang & Changhong Yuan & Chen Han, 2020. "Industry–university–research alliance portfolio size and firm performance: the contingent role of political connections," The Journal of Technology Transfer, Springer, vol. 45(5), pages 1505-1534, October.
    15. Anindya Ghosh & Thomas Klueter, 2022. "The Role of Frictions due to Top Management in Alliance Termination Decisions: Insights from Established Bio‐Pharmaceutical Firms," Journal of Management Studies, Wiley Blackwell, vol. 59(5), pages 1315-1353, July.

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