How do firms adapt their portfolios of external collaborations to changing internal organizational attributes? The moderating role of firm age

Objective of the study: Given the benefits of external collaborations in technology-intensive industries, we explore how firms adapt their portfolios of external collaborations to internal uncertainties. Using the behavioral theory of the firm, this study examines how firms adapt based on innovation performance feedback. Methodology/approach: We built a panel dataset from three sources. Patent data came from The National Bureau of Economic Research (NBER) paper (Kogan, Papanikolaou, Seru, & Stoffman, 2017), which used extensive name-matching tools to link USPTO patents to firms. External collaborations data were collected from the SDC Platinum Joint Ventures and Alliances database, focusing on R&D agreements. Financial data were sourced from Compustat. After processing, the dataset included nearly 900 publicly listed firms from 12 high-tech industries (1990-2010). We tested our hypotheses using two probit models, each predicting a different dependent variable. Originality/Relevance: We shift the focus from the traditional dyad perspective, which centers on individual partnerships, to how firms adjust their entire portfolios of external collaborations in response to their internal dynamics, like innovation performance feedback. While real options and transaction cost theories emphasize the need to maximize efficiency in individual partnerships, we explore how firms adapt their broader set of external collaborations to changing internal conditions. Main results: We find that firms performing above innovation aspirations are more likely to form equity alliances (i.e., joint ventures). However, the magnitude of this effect greatly differs between mature and young firms. Young firms are about four times more likely than their mature counterparts to form equity alliances when they significantly surpass their innovation targets. Theoretical/methodological contributions: Our study contributes to the research on alliance portfolio adaptation by showing that, beyond external factors like technological change and market uncertainty, firms also adjust their portfolios of external collaborations in response to internal factors, specifically innovation performance feedback. Moreover, our findings also demonstrate that firms’ responses to innovation performance relative to aspirations vary based on their lifecycle stage. Social /management contributions: Our study also has several implications for managers. First, managers of well-performing firms should view exceeding innovation aspirations as a signal to pursue collaborations to scale new technologies and knowledge. Their performance gives them a stronger negotiating position for forming joint ventures, allowing them to secure more favorable terms. Additionally, they should, in this case, seek partnerships to share risks associated with cutting-edge innovation projects rather than solely investing in internal innovation prospects. For young firms, which tend to respond more aggressively when outperforming their innovation aspirations, managers should adopt bold partnership strategies. In contrast, managers in mature firms should focus their resources on internal development, mergers and acquisitions, or partnerships that help maintain the autonomy of these firms