GOVERNANCE AND UNCERTAINTY - THE TRADE-OFF BETWEEN ADMINISTRATIVE CONTROL AND COMMITMENT

This study elaborates upon the motives for initiating equity-based col laborations vs. acquisition of another firm already having a desired t echnology. We characterize both minority direct investments and joint ventures as options to defer either internal development or acquisitio n of a target firm. In domains where learning about growth opportuniti es dominates investment activity, this incremental mode of governance economizes on the cost of committing resources to a technology with an uncertain value. Using a sample of 402 transactions in the biotechnol ogy industry, we find strong support for the theoretical model. The fi ndings suggest that the cost of commitment in the face of technologica l uncertainty may offset the administrative benefits of hierarchical g overnance. (C) 1998 John Wiley & Sons, Ltd.