Product alliances, alliance networks, and shareholder value: evidence from the biopharmaceutical industry

Despite sustained interest in product alliance activity, little is known regarding the effect of product alliances on shareholder value. Whereas proponents of alliances justify their formation by emphasizing access to relevant resources and know-how, critics highlight the risks inherent in alliance partner opportunism. To reconcile these opposing viewpoints, we develop and test a conceptual framework that predicts the impact of product alliance activity and the broader network it engenders on shareholder value: stock returns, systematic risk, and idiosyncratic risk. Our examination of 359 biopharmaceutical firms and their associated networks over a 20-year observation window shows that unanticipated product alliance activity is associated with not only lower idiosyncratic risk, but also with lower stock returns. Unanticipated network centrality of the focal firm and the unanticipated density of ties in its extended network significantly moderate the effects of product alliance activity. Our findings help to reconcile the divergent views on product alliance activity.