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

This paper proposes a new theoretical framework for assessing the influence of risk inshaping the governance form in biopharmaceutical inter-firm relationships. In particular,we propose a multidimensional operationalization of relational and performance risk and,by following Transaction Cost Economics (TCE) and Real Options (RO) theory constructs,we hypothesize a relation between the aforementioned risk components and the choice ofgovernance form. Specifically, following TCE reasoning, we hypothesize that a high level ofrelational risk leads towards more hierarchical governance forms, while, following ROtheory, we hypothesize that a high level of performance risk leads toward market-orientedgovernance forms; finally, we hypothesize a moderating effect of each risk component onthe other. We empirically test our framework through the analysis of 353 inter-firmrelationships signed worldwide between pharmaceutical and biotech companies from2007 to 2010. The results show substantive support for our theoretical framework.Furthermore, we find a significant moderating effect of the performance risk on the TCErelation between relational risk and governance forms.