Abstract
Knowledge creation is critical to a firm’s competitive advantage, and often requires external funding. Yet, we know little about how different types of investors respond to cash needs of established knowledge intensive firms nor about how external analysts influence those decisions. We address these gaps by examining how a firm’s patenting activity affects its abilities to raise cash. We distinguish motivations of two investor groups: open-market and alliance partners. We focus on how patents based on emergent technologies and number of analysts following the firm, when viewed simultaneously, impact two types of investors and their willingness to fund knowledge development. We develop theory and test our hypotheses using data from publicly traded biopharmaceutical firms by drawing upon knowledge based view, alliance and investment theories.
Highlights
Research and development (R&D) is critical to developing and maintaining a firm’s sustainable competitive advantage (Grant, 1996; Kogut & Zander, 1992)
We examined publicly available US Securities and Exchange Commission (SEC) firm filings, trade publications such Bioscan, articles contained in Nature Biotechnology, the ABI/INFORM database of business-related periodicals, and company websites for further information about these firms’ focus
We argued and found evidence patents built upon emergent technologies are viewed differently by the two types of investors
Summary
Research and development (R&D) is critical to developing and maintaining a firm’s sustainable competitive advantage (Grant, 1996; Kogut & Zander, 1992). Novelty leads to unforeseen obstacles and contingencies, reducing a firm’s chances of successfully generating new and useful knowledge Such circumstances create difficulties for firms seeking external funding to support knowledge development. We know relatively little about how different types of investors respond to cash needs of established firms whose operations are highly knowledge intensive We address these gaps by examining how a firm’s patenting activity affects its abilities to raise cash from two types of external investors. Basing a firm’s patents on emergent technologies can provide the basis for technological superiority vis-à-vis competitors due to their potential novelty and value These characteristics are often the reasons why collaborators seek to establish partnerships with knowledge producing firms (Shan, Walker, & Kogut, 1994; Rothaermel & Deeds, 2004).
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