R&D alliance participation and delistment of newly listed high tech firms

There is growing awareness that newly listed high tech firms are increasingly relying on collaborative research and development (R&D) agreements, in particular, R&D alliances, to pursue innovation. R&D alliances, which are essentially non-equity, contractual agreements among firms to jointly undertake R&D activities, are viewed as an efficient platform for generating innovative products and implementing business methods and practices with appreciable market success.

This paper examines the firm-specific characteristics that predispose newly listed high tech firms to participate in an R&D alliance. It also examines whether these characteristics predispose firms to become delisted due to poor financial performance. I employ multinomial and mixed logit models to analyze panel information on 257 high tech firms that had an initial public offering (IPO) in the United States over the period 1990-2000. I find evidence suggesting that large, R&D-intensive spending firms are more likely to collaborate. Cash flow appears to have a pronounced predisposing effect; firms with an adequate stream of cash are three times more likely to participate than their funds-constrained counterparts. Also, I find that highly leveraged firms are more likely to get delisted due to financial distress. Significant returns on assets, cash flow, and firm size appear to lower this likelihood.

This research contributes to the literature in two ways. First, from an empirical perspective, the paper, to my knowledge, is a first in applying multinomial logit and mixed logit models in examining the propensity for collaborative R&D and proneness to delistment. Second, and equally important, from an economic perspective, there has been relatively no investigation on the firm characteristics that predispose newly listed high tech firms to participate in an R&D alliance. Their proneness to failure is also underexplored. Characterizing the kinds of newly listed high tech firms inclined to participate in an R&D alliance and prone to experience poor financial performance can help policy makers devise appropriate schemes and guidelines for firms transitioning to and maintaining IPO status.   

The sample of firms was obtained from a merger of four different datasets: (i) the SDC Platinum Global New Issues, (ii) SDC Platinum Joint Venture/Alliances, (iii) Center for the Research in Security Prices, and (iv) Compustat- WRDS. I use Tobin’s q, ROA (return on assets), debt/assets, cash flow/assets, (log) sales, and (log) R&D expenditures as the firm-specific characteristics posited to influence the likelihood of alliance participation and the likelihood of firm delistment.