The Mutual Relationship between Innovative Output and R&D Alliances

Abstract

The behavioral theory of the firm maintains that when firms perform below their aspiration, they will engage in problematic search and invest in novel solutions to improve subsequent performance. Using a pooled time series analysis of 667 observations for 131 biopharmaceutical firms operating in the India from 2000 to 2014, the authors find support for behavioral theory expectations. Furthermore, the data suggests that the relationship between past below aspiration innovative output and subsequent innovative output, defined as new product introductions, is mediated by the number of R&D alliances established, while the relationship between past above aspiration performance and innovative output is not. The authors contribute to the behavioral theory and alliance literature, illustrate how firms' innovative output influences R&D alliance formation, and suggest directions for future research.