Umit Ozmel

Network Prominence, Bargaining Power, and the Allocation of Value Capturing Rights in High-Tech Alliance Contracts

We suggest and provide empirical evidence that the bargaining power of alliance partners stemming from their prominence in alliance networks influences the ex-ante allocation of value capturing rights in high-tech alliance contracts. Network prominence can enhance the availability of alternative partners for a firm and thereby elevates the firm’s bargaining power and enables the firm to receive (i) more value capturing rights vis-a-vis its partner (i.e., more net value capturing rights) and (ii) more rights to the unexpected outcomes vis-a-vis its partner. We empirically investigate the content of research and development (R&D) collaboration contracts between biotech and pharmaceutical firms and show that as the prominence of the client (i.e., pharmaceutical firm) increases, it is able to attain (i) more net value capturing rights to outcomes within the area of collaboration and (ii) more rights to unexpected outcomes. By contrast, increased prominence of the R&D firm (i.e., biotech firm) decreases both t...

Network Prominence, Bargaining Power, and the Allocation of Value Capture Rights in Alliance Contracts

We suggest and provide empirical evidence that the bargaining power of alliance partners stemming from their prominence in alliance networks influences the ex-ante allocation of value capturing rights in high-tech alliance contracts. Network prominence can enhance the availability of alternative partners for a firm, and thereby elevates the firm’s bargaining power and enables the firm to receive i) more value capturing rights vis-a-vis its partner (i.e., more net value capturing rights) and ii) more rights to the unexpected outcomes vis-a-vis its partner. We empirically investigate the content of R&D collaboration contracts between biotech and pharmaceutical firms and show that as the prominence of the client (i.e., pharmaceutical firm) increases, it is able to attain i) more net value capturing rights to outcomes within the area of collaboration and ii) more rights to unexpected outcomes. By contrast, increased prominence of the R&D firm (i.e., biotech firm) decreases both the number of net value capturing rights the client receives as well as the rights to unexpected outcomes that the client captures in an alliance contract. The bargaining power that the R&D firm attains from its prominent position in alliance networks becomes less important during hot IPO markets, which provide the R&D firm more outside options to obtain financial resources. Hence, our paper documents that firms’ network positions can be an important source of bargaining power, contributing to the literature on strategic alliances, bargaining, and contract design.

Outside Insiders: Does Access to Information Prior to an IPO Generate a Trading Advantage After the IPO?

We investigate whether access to information prior to an IPO generates a trading advantage after the IPO. We find that limited partners (LPs) of venture capital funds obtain high returns when they invest in newly listed stocks backed by their funds. These returns are not explained by LPs’ differing stock picking abilities, and are higher when LPs’ information advantage over the public is higher. Further, LPs’ access to information eliminates the familiarity bias that they display otherwise. Overall, access to information prior to the IPO results in a trading advantage. These findings contribute to the debate on insider trading regulations.

The Effect of Inter-firm Ties on Performance in Financial Markets

The present study examines the effect of the information obtained through close inter-firm ties on the investor’s risk-adjusted returns. We suggest that there is a closely connected tie between an investor and an entrepreneurial firm if the investor is a limited partner of the entrepreneurial firm’s lead venture capital (VC) fund. We hypothesize that such closely connected ties convey credible, timely, and precise information regarding the underlying value of the entrepreneurial firm, which is especially valuable when market conditions are unfavorable and when the investor faces higher information asymmetry. Supporting our hypotheses, we show that investors with closely connected ties to entrepreneurial firms receive higher returns on their investments, and their returns are particularly high when investor sentiment is low (unfavorable market conditions) and when there is higher information asymmetry due to greater geographical distance.