Do Equity Financing Cycles Matter?: Evidence from Biotechnology Alliances

44 Pages Posted: 14 Oct 1999

See all articles by Alexander Tsai

Alexander Tsai

Case Western Reserve University - School of Medicine

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 1999

Abstract

While the variability of public equity financing has been long recognized, its impact on firms has attracted little empirical scrutiny. This paper examines one setting where theory suggests that variations in financing conditions should matter, alliances between small R&D firms and major corporations: Aghion and Tirole [1994] suggest that when financial markets are weak, assigning the control rights to the small firm may be sometimes desirable but not feasible. The performance of 200 agreements entered into by biotechnology firms between 1980 and 1995 suggests that financing availability does matter. Consistent with theory, agreements signed during periods with little external equity financing that assign the bulk of the control to the corporate partner are significantly less successful than other alliances. These agreements are also disproportionately likely to be renegotiated if financial market conditions improve.

JEL Classification: L22, O32, G32

Suggested Citation

Tsai, Alexander and Lerner, Josh, Do Equity Financing Cycles Matter?: Evidence from Biotechnology Alliances (June 1999). Available at SSRN: https://ssrn.com/abstract=169789 or http://dx.doi.org/10.2139/ssrn.169789

Alexander Tsai

Case Western Reserve University - School of Medicine ( email )

2511 Overlook Road
Unit No. 6
Cleveland Heights, OH 44106
United States

Josh Lerner (Contact Author)

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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