Does Weak Contract Enforcement Impede R&D Alliance Formation?

This paper investigates whether the effectiveness of contract enforcement affects the extent for firms to form R&D alliances. We first formalize in a model how weak contract enforcement is associated with a lower probability of observing a firm forming any R&D alliance. The model implies that such an association is further exacerbated if the firm perceives its partner as less trustworthy. Using the World Bank survey data on Chinese manufacturing firms in 2002, we find empirical results consistent with these theoretical predictions. A series of robustness checks gives confidence that the results are unlikely to be driven by econometric errors.