Rachelle C. Sampson

R&D Alliances and Firm Performance: The Impact of Technological Diversity and Alliance Organization on Innovation

In response to competitive pressures, firms increasingly use R&D alliances to complement in-house R&D efforts. However, empirical evidence to date provides little guidance on how firms can use this strategy effectively. Here, I examine why some R&D alliances contribute more than others to firm innovative performance. I suggest that technological diversity, or differences in technological capabilities between partners, determines firm benefits from such alliances. Further, I argue that how partners organize their alliance activities influences this relationship between technological diversity and firm innovation. To test these relationships, I examine firm patenting performance with a sample of 463 R&D alliances in the telecommunications equipment industry. I find that alliances contribute far more to firm innovative performance when technological diversity is moderate, rather than low or high. Some diversity is required, or firms have nothing to learn from their partners. However, when very diverse, firms have difficulty learning from their partners. While this relationship holds irrespective of alliance organization, I find that hierarchical organization, such as the equity joint venture, improves firm benefits from alliances with high levels of technological diversity. Thus, alliance organization likely influences partner ability and incentives to share information, which affects performance. Keywords: alliances, R&D, patents

Formal Contracts in the Presence of Relational Enforcement Mechanisms: Evidence from Technology Development Projects

Formal contracting addresses the moral hazard problems inherent in interfirm deals via explicit terms designed to achieve incentive alignment. Alternatively, when firms expect to interact repeatedly, relational mechanisms may achieve similar results without the associated costs. However, as we now know from a growing body of theoretical and empirical work, the resulting intuition---that relational mechanisms will be substituted for formal ones whenever possible---does not generally hold. The extent to which firms substitute relational mechanisms for formal ones in the presence of repeated interaction is an empirical question that forms the basis of this paper. We study a sample of 52 joint technology development contracts in the telecommunications and microelectronics industries and devise a coding scheme to allow empirical comparison of contract terms. Counter to the above intuition (but consistent with recent research), we find that a firms contracts are more detailed and more likely to include penalties when it engages in frequent deals (whether with the same or different partners). Our results suggest complementarity between formal and relational contracts, and have implications for optimal contracting, particularly in high technology sectors.

Experience, Learning & Collaborative Returns in R&D Alliances

Focusing on the link between prior alliance experience and firm benefits from RD and (2) to diminish at high levels of experience. Results from a sample of 464 R&D alliances in the telecom equipment industry generally match these expectations. The positive benefits of prior experience in complex alliances suggests that a broader set of alliance management processes allows the firm to manage situations of ambiguity more readily. The lack of cumulative benefits from prior experience appears to be partly due to knowledge depreciating over time, since only recent experience has a positive impact on collaborative returns. Overall, these results provide empirical evidence of the effect of prior experience on collaborative benefits, both directly and conditional on alliance characteristics, and have implications for learning to manage organizations more generally.

Are US Markets Becoming More Short-Term Oriented? Evidence and Implications of Market Discounting of Firms, 1980-2013

We provide evidence that investors in US public markets are increasingly discounting firms’ expected future cash flows during 1980-2013. This trend is shown not only on average across firms, but also within firms over time after alternative explanations are accounted for. To corroborate a link with firm time horizons, we estimate the relationship between an implied discount rate (‘IDR’) and factors relevant to firm long-term strategy. We find that IDR is correlated in expected ways with firm investments, management incentives, financial health, ownership and external pressures - measures that have been argued to correlate with firm time horizons. This paper represents one of the first attempts to document market-wide evidence of shortening firm time horizons. These changing horizons bear important implications for firm strategy.

Contract Structure for Joint Production: Risk and Ambiguity under Compensatory Damages

We develop a model in which the parties to a joint production project have a choice of specifying contractual performance in terms of actions or deliverables. Penalties for noncompliance are not specified; rather, they are left to the courts under the legal doctrine of compensatory damages. We analyze three scenarios of increasing uncertainty: full information, where implications of partner actions are known; risk, where implications can be probabilistically quantified; and ambiguity, where implications cannot be so quantified. Under full information, action requirements dominate: they always induce the maximum economic value. This dominance vanishes in the risk scenario. Under ambiguity, deliverables specifications can interact with compensatory damages to create a form of “ambiguity insurance,” where ambiguity aversion is assuaged in a way that increases the aggregate, perceived value of the project. This effect does not arise under contracts specifying action requirements. Thus, deliverables contracts ...

Evidence and Implications of Short-Termism in US Public Capital Markets: 1980-2013

We provide evidence that investors in US public markets are increasingly discounting firms’ expected future cash flows during 1980-2013. This trend is shown not only on average across firms, but also within firms over time after alternative explanations are accounted for. To corroborate a link with firm time horizons, we estimate the relationship between an implied discount rate (‘IDR’) and factors relevant to firm long-term strategy. We find that IDR is correlated in expected ways with firm investments, management incentives, financial health, ownership and external pressures - measures that have been argued to correlate with firm time horizons. This paper represents one of the first attempts to document market-wide evidence of shortening firm time horizons. These changing horizons bear important implications for firm strategy.