Choosing to Cofinance: Analysis of Project-Specific Alliances in the Movie Industry

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.

© Oxford University Press 2007