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The Importance of Alliances in Firm Capital Structure Decisions: Evidence from Biotechnology Firms

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  • Fabio Zambuto
  • Giovanna Lo Nigro
  • Jonathan P. O'Brien

Abstract

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.

Suggested Citation

  • Fabio Zambuto & Giovanna Lo Nigro & Jonathan P. O'Brien, 2017. "The Importance of Alliances in Firm Capital Structure Decisions: Evidence from Biotechnology Firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 38(1), pages 3-18, January.
    • Handle: RePEc:wly:mgtdec:v:38:y:2017:i:1:p:3-18
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