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The purpose of this paper is to analyse the possibility for firms to consider institutional settings to systematically direct dispersed individual efforts of discovery and invention towards objects (products or processes) of their interest in order to enhance their value creation capacity.

The authors conduct a comparative analysis of the different institutional settings within which software products are invented and produced – closed producer-centred model, open user-centred model, and hybrid interactive producer-user model.

The authors draw indications regarding the possibility to design institutional settings for value creation and the potential pitfalls tied to these strategic tools.

A theoretical framework is elaborated in order to understand the different ways in which institutional contexts influence and direct value creation processes. The model analysed shows the firms’ deliberate attempt to stimulate a dynamic process of social interaction and communication which may foster higher levels of creativity and innovation. In order to guarantee the necessary accessibility and to sufficiently motivate external programmers towards the perception of a new code, the firm has to surrender the traditional source through which it appropriates value: barriers to the accessibility of the code developed through IPRs. The adoption of an institutional setting which facilitates dynamic value creation processes suggests, therefore, the need to turn to dynamic mechanisms for value appropriation in parallel.

We propose that in addition to its resources and capabilities, a firm’s capital structure and financial health will act as an important determinant of its attractiveness as an alliance partner. Alliances with leveraged firms are prone to unplanned termination due to financial distress, which puts at risk the value embedded in the collaboration. As a result, ceteris paribus, highly leveraged firms will be viewed as less desirable partners in the market for interfirm collaboration when compared to low leverage firms. In support of this proposition, we find that when forming an alliance firms tend to partner with other firms with similar levels of leverage: low-leverage firms partner with other low-leverage firms while high-leverage firms partner with other high-leverage firms, as well as with lower quality ones. Furthermore, we show that alliances with highly leveraged firms are more likely to involve equity participation as a form of ex post protection, especially when they involve partners with relatively lower leverage. Finally, we show that leverage is negatively related to the intensity of alliance activity, suggesting that firms also maintain lower leverage in their capital structure in order to attract potential partners. Overall our results imply that financial policies regarding capital structure have an important role to play in alliancing activity.