We analyze 125 strategic alliance contracts, all of which concern early-stage research at small biotechnology research and development companies. Staged investment is ubiquitous, but solutions to agency problems vary. The cycle of equity participation in alliances resembles what we observe in...

We argue that the stock of prior alliances between participants in the biotechnology sector forms a network that serves as a governance mechanism in interfirm transactions. To test how this network substitutes for other governance mechanisms, we examine how equity participation and pledged...