CROSS-CUTTING TIES, ORGANIZATIONAL DENSITY, AND NEW FIRM FORMATION IN THE US BIOTECH INDUSTRY, 1994-98

Abstract

This study examines the role of cooperative relations among incumbents in the formation of new firms. We argue that cooperative interfirm relations that bridge geographically remote and diverse sources of knowledge-cross-cutting ties-contribute to new firm formation. Employing data on state-level entries into the U.S. biotech industry from 1994 to 1998, we find support for the following hypotheses: the formation of new firms in a focal region of an industry is positively related to the number of cross-cutting ties; the number of cross-cutting ties negatively moderates the effects of organizational density on the formation of new firms.