Do Institutional Reforms Perpetuate or Mitigate the Matthew Effect? Intellectual Property Rights and Access to International Alliances

Sarath Balachandran, London Business School, and Exequiel Hernandez, Management, The Wharton School

Abstract: Institutional reforms can profoundly alter the competitive positions of firms. Yet there has been limited research on which firms benefit most from these reforms: are the opportunities they create seized primarily by the most prominent firms, thus perpetuating a ‘rich get richer’ dynamic, or by previously peripheral firms, thus leveling the playing field? We address this question by exploring how intellectual property rights (IPR) reforms affect access to international alliances, a valuable channel of resources for firms in emerging markets. We find a significant increase in the number of international alliances formed by firms from the reforming countries corresponding precisely with the timing of IPR law improvements. This increase is strongest for firms that were ‘peripheral’ pre-reform: those that were of low status in the global alliance network and those located outside major cities in the reforming countries. Peripheral firms also benefitted the most from IPR improvements in terms of the quality of their alliance portfolios, gaining partners of higher status, from technologically stronger countries, and from a wider diversity of countries. Our study suggests that institutions play a role in mitigating the Matthew effect in global alliance networks.

Read the full working paper here (PDF).

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