Discovering valuable growth opportunities: An analysis of equity alliances with IPO firms

Firms often use alliances to access external resources and explore new market or technological opportunities, yet they also can face obstacles to discovering these opportunities in the first place. In this paper, we examine how firms can overcome these obstacles and form equity alliances with newly public companies to obtain valuable growth opportunities. Specifically, we build on real options theory and develop the argument that the visibility of firms having an initial public offering (IPO) can shape investors' recognition of the embedded growth opportunities and therefore channel their alliance activities. The evidence shows that firms are more likely to partner with IPO firms possessing more valuable growth opportunities. Furthermore, this relationship is magnified for IPO firms that have obtained more visibility, either through various interorganizational relationships or media coverage on going public.