The impact of declining research productivity in the pharmaceutical sector on corporate finance decisions

I explore the impact declining productivity in the pharmaceutical industry has on corporate finance decisions. The two corporate events studied are mergers and acquisitions and strategic alliances.; There is a large body of research that suggests that mergers and acquisitions are generally bad for acquiring firm shareholders. My research suggests otherwise. In my first chapter I focus on one specific motivation for acquisitions---the outsourcing of research and development---and find that value can be created for acquiring firm shareholders. A unique Desperation Index measure is utilized in this study. This index is a combined measure of a firm's research and patented products portfolio. I find that firms that are more desperate are more likely to engage in an acquisition. Additionally, through pre-acquisition information gathering activities, acquiring firms are able to overcome the traditional winners' curse and generate positive shareholder value. Even the most desperate firms are able to generate some positive value. Finally, I find real measures of success for these acquisitions. For example, I find that firms with declining research portfolios are able to stop that decline through the use of acquisitions.; My second project focuses on strategic alliances between customer firms (pharmaceutical companies) and research-intensive firms (biotechnology firms). Well established theory suggests that the bargaining position of both firms should impact the overall allocation of control rights. However, the majority of the extant empirical literature holds constant the bargaining position of the customer firm and focuses solely on the research-intensive firm. I include measures to control for the research-intensive firm's bargaining position however my focus is on whether the unique Desperation Index impacts the customer firm's bargaining position and subsequent allocation of control rights. In addition, I begin to explore when and if the allocation of rights has any impact on customer firm shareholder value. I find that the customer firm bargaining position is impacted by the Desperation Index; however, my findings suggest that the bargaining position of the research-intensive firm is still the driving factor in the allocation of rights. Furthermore, I find limited impact on customer firm shareholder value---at least initially.