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The financing of alliance entrepreneurship

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  • Hong, Jieying

Abstract

It is popular nowadays for entrepreneurial firms to advance their entrepreneurship outside their boundaries through alliances. This paper studies how the financing of entrepreneurship changes in strategic alliances. We model a financially constrained entrepreneur and a deep-pocket incumbent developing an innovative product through a strategic alliance, which generates externalities on the incumbent. We find that i) in contrast to traditional theories, the entrepreneur's financial constraint can be tightened by an increase in his endowment; ii) an outside investor is introduced as a third party to deal with the free-riding agency problem; and iii) the externalities have a significant effect on the design of financial claims in the alliance contract, and the incentive-compatible financial instruments are consistent with empirical observations.

Suggested Citation

  • Hong, Jieying, 2020. "The financing of alliance entrepreneurship," Journal of Business Venturing, Elsevier, vol. 35(1).
    • Handle: RePEc:eee:jbvent:v:35:y:2020:i:1:s0883902617308790
    DOI: 10.1016/j.jbusvent.2018.12.002
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    References listed on IDEAS

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    Cited by:

    1. Zahoor, Nadia & Gabriel Pepple, Dennis & Choudrie, Jyoti, 2021. "Entrepreneurial competencies and alliance success: The role of external knowledge absorption and mutual trust," Journal of Business Research, Elsevier, vol. 136(C), pages 440-450.
    2. Amir Emami & Dianne H. B. Welsh & Ali Davari & Arash Rezazadeh, 2022. "Examining the relationship between strategic alliances and the performance of small entrepreneurial firms in telecommunications," International Entrepreneurship and Management Journal, Springer, vol. 18(2), pages 637-662, June.
    3. Parker, Simon C., 2020. "Editorial: On submitting economics articles to JBV," Journal of Business Venturing, Elsevier, vol. 35(4).
    4. George Bogdan Drăgan & Andrei Alexandru Panait & George Cristian Schin, 2022. "Tracking precursors of entrepreneurial intention: the case of researchers involved in eco-label industry," International Entrepreneurship and Management Journal, Springer, vol. 18(4), pages 1605-1622, December.

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    More about this item

    Keywords

    Alliance entrepreneurship; Financial contracting; Externality; Security design;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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