Formal and informal governance in biotechnology alliances: board oversight, contractual control, and repeated deals

Jongwook Kim

Industrial and Corporate Change, 2014, vol. 23, issue 4, 903-929

Abstract: In complex transactions like strategic alliances, firms are likely to employ both formal and informal governance mechanisms to achieve effective alliance governance. The question of whether formal and informal governance mechanisms are complements or substitutes needs to be addressed within the context of effective governance as a means to economic value creation for the transacting partners. Rather than an "either" or "choice between the two perspectives" the substitute hypothesis and the complement hypothesis—on the relationship between formal and informal governance mechanisms, I provide evidence from the biotechnology industry that alliances characterized by high levels of exchange hazards utilizing both mechanisms, supporting the complements hypothesis, whereas those alliances with lower levels of exchange hazards utilize only one type of governance mechanism. Finding seemingly contrasting results within a single institutional setting suggests that, in addition to institution-specific characteristics, alliance-specific characteristics may also be critical for understanding how alliance partners utilize multiple governance mechanisms.

Date: 2014
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