Conditional Affiliation Industries: Accounting for the Stability of Portfolio Relations Among Specialized Project-Based Firms (PBFs)

Prior research suggests that it is not just the length of time one has known a counterpart that matters in determining the stability of one's relationship, but also the length of time between affiliations. Still, the act of choosing a partner traditionally has not been separable from the time elapsed. In this paper, I draw attention to a class of industries in which this endogeneity of association and opportunity is mitigated. These industries are characterized by what I call conditional affiliation opportunities, wherein the ability of more “generalist” first-stage firms to affiliate with more “specialist” second-stage firms is contingent upon selection of the generalist by a third party, such as a client. Using a sample of 2033 investment banking initial public offering (IPO) deals to construct period-to-period portfolios of investment banks, I explore the characteristics of these conditional affiliation (CA) industries, which represent a subset of project-based firm (PBF) industries. The findings suggest that the exogeneity of opportunities to affiliate is an important boundary condition of established work. I observe no increased stability in the initial years, no increased instability in later years, and no evidence of the honeymoon effect, as prior work would have predicted. In contrast, I find that only structural gaps of three years are meaningful in terms of predicting instability. This provides evidence of the declining benefit of familiarity as conditional affiliation opportunities widen. I also find that specialists see greater stability in relations, but not as status rises.