How risk influences the choice of governance mode in biopharmaceutical inter-firm relationships

Abstract

This paper proposes a new theoretical framework for assessing the influence of risk in\ud shaping the governance form in biopharmaceutical inter-firm relationships. In particular,\ud we propose a multidimensional operationalization of relational and performance risk and,\ud by following Transaction Cost Economics (TCE) and Real Options (RO) theory constructs,\ud we hypothesize a relation between the aforementioned risk components and the choice of\ud governance form. Specifically, following TCE reasoning, we hypothesize that a high level of\ud relational risk leads towards more hierarchical governance forms, while, following RO\ud theory, we hypothesize that a high level of performance risk leads toward market-oriented\ud governance forms; finally, we hypothesize a moderating effect of each risk component on\ud the other. We empirically test our framework through the analysis of 353 inter-firm\ud relationships signed worldwide between pharmaceutical and biotech companies from\ud 2007 to 2010. The results show substantive support for our theoretical framework.\ud Furthermore, we find a significant moderating effect of the performance risk on the TCE\ud relation between relational risk and governance forms

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