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Discovering Valuable Growth Opportunities: An Analysis of Equity Alliances with IPO Firms

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  • Jeffrey J. Reuer

    (Krannert School of Management, Purdue University, West Lafayette, Indiana 47907)

  • Tony W. Tong

    (Leeds School of Business, University of Colorado, Boulder, Colorado 80309)

Abstract

Firms often use alliances to access external resources and explore new market or technological opportunities, yet they also can face obstacles to discovering these opportunities in the first place. In this paper, we examine how firms can overcome these obstacles and form equity alliances with newly public companies to obtain valuable growth opportunities. Specifically, we build on real options theory and develop the argument that the visibility of firms having an initial public offering (IPO) can shape investors' recognition of the embedded growth opportunities and therefore channel their alliance activities. The evidence shows that firms are more likely to partner with IPO firms possessing more valuable growth opportunities. Furthermore, this relationship is magnified for IPO firms that have obtained more visibility, either through various interorganizational relationships or media coverage on going public.

Suggested Citation

  • Jeffrey J. Reuer & Tony W. Tong, 2010. "Discovering Valuable Growth Opportunities: An Analysis of Equity Alliances with IPO Firms," Organization Science, INFORMS, vol. 21(1), pages 202-215, February.
    • Handle: RePEc:inm:ororsc:v:21:y:2010:i:1:p:202-215
    DOI: 10.1287/orsc.1080.0397
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    2. Hart E. Posen & Michael J. Leiblein & John S. Chen, 2018. "Toward a behavioral theory of real options: Noisy signals, bias, and learning," Strategic Management Journal, Wiley Blackwell, vol. 39(4), pages 1112-1138, April.
    3. Song, Sangcheol, 2014. "Unfavorable Market Conditions, Institutional and Financial Development, and Exits of Foreign Subsidiaries," Journal of International Management, Elsevier, vol. 20(3), pages 279-289.
    4. Bouncken, Ricarda B. & Fredrich, Viktor, 2016. "Good fences make good neighbors? Directions and safeguards in alliances on business model innovation," Journal of Business Research, Elsevier, vol. 69(11), pages 5196-5202.
    5. Sharon Belenzon & Victor Manuel Bennett & Andrea Patacconi, 2019. "Flexible Production and Entry: Institutional, Technological, and Organizational Determinants," Strategy Science, INFORMS, vol. 4(3), pages 193-216, September.
    6. Ramin Vandaie & Akbar Zaheer, 2015. "Alliance Partners and Firm Capability: Evidence from the Motion Picture Industry," Organization Science, INFORMS, vol. 26(1), pages 22-36, February.
    7. Sharon Belenzon & Victor Manuel Bennett & Andrea Patacconi, 2019. "Flexible Production and Entry: Institutional, Technological, and Organizational Determinants," NBER Working Papers 25659, National Bureau of Economic Research, Inc.
    8. Sangcheol Song, 2017. "Ownership Increase in International Joint Ventures: The Within- and Across-Country Flexibility Perspective," Management International Review, Springer, vol. 57(1), pages 93-120, February.
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    11. Mouri, Nacef & Sarkar, M.B. & Frye, Melissa, 2012. "Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty," Journal of Business Venturing, Elsevier, vol. 27(3), pages 355-371.
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    13. Sachiko HATA & Yasuo SUGIYAMA, 2023. "At the Right Time:Eliminating Mismatch between Cash Flow and Credit Flow in Microcredit," Discussion papers e-23-001, Graduate School of Economics , Kyoto University.
    14. Bhuyan, Md Nazmul Hasan & Subedi, Meena & Akter, Maimuna, 2022. "CEO-friendly boards and seasoned equity offerings," Journal of Behavioral and Experimental Finance, Elsevier, vol. 36(C).
    15. Rodolphe Durand & Robert M. Grant & Tammy L. Madsen & Lenos Trigeorgis & Jeffrey J. Reuer, 2017. "Real options theory in strategic management," Strategic Management Journal, Wiley Blackwell, vol. 38(1), pages 42-63, January.
    16. Céline Bérard & Marie Perez, 2014. "Alliance Dynamics through Real Options: The Case of an Alliance between Competing Pharmaceutical Companies," Post-Print hal-04010373, HAL.
    17. Puay Khoon Toh & Shiva Agarwal, 2023. "The option value in complements within platform‐based ecosystems," Strategic Management Journal, Wiley Blackwell, vol. 44(2), pages 576-609, February.
    18. Cabral, Joseph J. & Kumar, M.V. Shyam, 2023. "The impact of underpricing on newly public firm investments," Journal of Business Venturing Insights, Elsevier, vol. 19(C).
    19. Arvind Ashta, 2018. "News and Trends in Fintech and Digital Microfinance: Why Are European MFIs Invisible?," FIIB Business Review, , vol. 7(4), pages 232-243, December.
    20. Song, Sangcheol, 2020. "Actualization of growth potential in international joint ventures: The moderating effects of localization strategies," Journal of World Business, Elsevier, vol. 55(2).
    21. Guldiken, Orhun & Tupper, Christina & Nair, Anil & Yu, Huizhi, 2017. "The impact of media coverage on IPO stock performance," Journal of Business Research, Elsevier, vol. 72(C), pages 24-32.
    22. Bérard, Céline & Perez, Marie, 2014. "Alliance dynamics through real options: The case of an alliance between competing pharmaceutical companies," European Management Journal, Elsevier, vol. 32(2), pages 337-349.
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