RFS Advance Access originally published online on December 12, 2007
Review of Financial Studies 2008 21(2):483-511; doi:10.1093/rfs/hhm064
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
Choosing to Cofinance: Analysis of Project-Specific Alliances in the Movie Industry
Rutgers Business School, Newark and New Brunswick
Rutgers Business School, Newark and New Brunswick, and Johnson School of Management, Cornell University
Southern Methodist University
Address correspondence to Natalia Reisel, Cox School of Business, SMU, Dallas, TX 75275, or e-mail: nreisel{at}smu.edu.
JEL Classification: G32, L24
 |
Abstract |
|---|
We use a movie industry project-by-project dataset to analyze the choice of financing a project internally versus financing it through outside alliances. The results indicate that project risk is positively correlated with alliance formation. Movie studios produce a variety of films and tend to develop their safest projects internally. Our findings are consistent with internal capital market explanations. We find mixed evidence regarding resource pooling, i.e., sharing the cost of large projects. Finally, the evidence shows that projects developed internally perform similarly to projects developed through outside alliances.
We thank Janis Berzins, Sris Chatterjee, Ben Esty, Gautam Goswami, Bill Greene, John Hadity, Jeff Korchek, Josh Lerner, Adam Lubin, Zaur Rzakhanov, and Yusif Simaan; and participants in the Fifth Annual Business and Economics Scholars Workshop in Motion Picture Industry Studies, the 2004 International Industrial Organization Conference, a seminar in IDC, and the 2006 European Finance Association Meetings for helpful comments and discussion. We thank the Whitcomb Financial Services Center for financial support, and Ravid thanks the Sanger family foundation for financial support. We especially thank an anonymous referee and Robert McDonald (editor) for many useful comments that have significantly improved the paper. All errors remain our own responsibility.