IDEAS home Printed from https://ideas.repec.org/a/bla/jomstd/v57y2020i8p1690-1717.html
   My bibliography  Save this article

Internal Resource Allocation and External Alliance Activity of Diversified Firms

Author

Listed:
  • Joseph J. Cabral
  • Chaoqun Deng
  • M. V. Shyam Kumar

Abstract

Prior research suggests that diversified firms are often unable to match resources to the market needs and opportunities of their divisions due to factors such as influence activities. In this research, we propose that when such internal inefficiencies arise, diversified firms may form alliances to access resources externally to support their divisions in their industries and operations. Using a sample of US firms between 1997 and 2006, we find that, on average, diversified firms form more alliances within industries that they currently operate in when compared to single business firms. The alliancing activity in related industries increases when businesses with diverse growth opportunities exist within the same firm, and it decreases with the intensity of internal control and coordination mechanisms. Our study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their boundaries.

Suggested Citation

  • Joseph J. Cabral & Chaoqun Deng & M. V. Shyam Kumar, 2020. "Internal Resource Allocation and External Alliance Activity of Diversified Firms," Journal of Management Studies, Wiley Blackwell, vol. 57(8), pages 1690-1717, December.
    • Handle: RePEc:bla:jomstd:v:57:y:2020:i:8:p:1690-1717
    DOI: 10.1111/joms.12570
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joms.12570
    Download Restriction: no
    File URL: https://libkey.io/10.1111/joms.12570?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Oliver E. Williamson, 1967. "Hierarchical Control and Optimum Firm Size," Journal of Political Economy, University of Chicago Press, vol. 75, pages 123-123.
    2. Lamont, Owen A. & Polk, Christopher, 2002. "Does diversification destroy value? Evidence from the industry shocks," Journal of Financial Economics, Elsevier, vol. 63(1), pages 51-77, January.
    3. Phillip C. Nell & Philip Kappen & Tomi Laamanen, 2017. "Reconceptualising Hierarchies: The Disaggregation and Dispersion of Headquarters in Multinational Corporations," Journal of Management Studies, Wiley Blackwell, vol. 54(8), pages 1121-1143, December.
    4. Ran Duchin & Denis Sosyura, 2013. "Divisional Managers and Internal Capital Markets," Journal of Finance, American Finance Association, vol. 68(2), pages 387-429, April.
    5. Gerard Hoberg & Gordon Phillips, 2010. "Real and Financial Industry Booms and Busts," Journal of Finance, American Finance Association, vol. 65(1), pages 45-86, February.
    6. Daniel A. Levinthal & Brian Wu, 2010. "Opportunity costs and non‐scale free capabilities: profit maximization, corporate scope, and profit margins," Strategic Management Journal, Wiley Blackwell, vol. 31(7), pages 780-801, July.
    7. Tim Loughran & Bill Mcdonald, 2016. "Textual Analysis in Accounting and Finance: A Survey," Journal of Accounting Research, Wiley Blackwell, vol. 54(4), pages 1187-1230, September.
    8. J. Myles Shaver & John M. Mezias, 2009. "Diseconomies of Managing in Acquisitions: Evidence from Civil Lawsuits," Organization Science, INFORMS, vol. 20(1), pages 206-222, February.
    9. Robert M. Grant & Charles Baden‐Fuller, 2004. "A Knowledge Accessing Theory of Strategic Alliances," Journal of Management Studies, Wiley Blackwell, vol. 41(1), pages 61-84, January.
    10. Burch, Timothy R. & Nanda, Vikram, 2003. "Divisional diversity and the conglomerate discount: evidence from spinoffs," Journal of Financial Economics, Elsevier, vol. 70(1), pages 69-98, October.
    11. Pranav Garg & Minyuan Zhao, 2018. "Knowledge sourcing by multidivisional firms," Strategic Management Journal, Wiley Blackwell, vol. 39(13), pages 3326-3354, December.
    12. Vikas A. Aggarwal & Brian Wu, 2015. "Organizational Constraints to Adaptation: Intrafirm Asymmetry in the Locus of Coordination," Organization Science, INFORMS, vol. 26(1), pages 218-238, February.
    13. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    14. Akbar Zaheer & Exequiel Hernandez & Sanjay Banerjee, 2010. "Prior Alliances with Targets and Acquisition Performance in Knowledge-Intensive Industries," Organization Science, INFORMS, vol. 21(5), pages 1072-1091, October.
    15. David J. Teece, 2003. "Towards an Economic Theory of the Multiproduct Firm," World Scientific Book Chapters, in: Essays In Technology Management And Policy Selected Papers of David J Teece, chapter 15, pages 419-446, World Scientific Publishing Co. Pte. Ltd..
    16. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    17. Wulf, Julie, 2009. "Influence and inefficiency in the internal capital market," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 305-321, October.
    18. Laura Poppo, 2003. "The Visible Hands of Hierarchy within the M‐Form: An Empirical Test of Corporate Parenting of Internal Product Exchanges," Journal of Management Studies, Wiley Blackwell, vol. 40(2), pages 403-430, March.
    19. Turanay Caner & Olga Bruyaka & John E. Prescott, 2018. "Flow Signals: Evidence from Patent and Alliance Portfolios in the US Biopharmaceutical Industry," Journal of Management Studies, Wiley Blackwell, vol. 55(2), pages 232-264, March.
    20. Foss, Nicolai J, 1997. "On the Rationales of Corporate Headquarters," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 6(2), pages 313-338, March.
    21. Bhaven N. Sampat, 2010. "When Do Applicants Search for Prior Art?," Journal of Law and Economics, University of Chicago Press, vol. 53(2), pages 399-416, May.
    22. Leslie E. Palich & Laura B. Cardinal & C. Chet Miller, 2000. "Curvilinearity in the diversification–performance linkage: an examination of over three decades of research," Strategic Management Journal, Wiley Blackwell, vol. 21(2), pages 155-174, February.
    23. Aseem Kaul, 2012. "Technology and Corporate Scope: Firm and Rival Innovation as Antecedents of Corporate Transactions," Strategic Management Journal, Wiley Blackwell, vol. 33(4), pages 347-367, April.
    24. Ohad Ref & Zur Shapira, 2017. "Entering new markets: The effect of performance feedback near aspiration and well below and above it," Strategic Management Journal, Wiley Blackwell, vol. 38(7), pages 1416-1434, July.
    25. Melissa A. Schilling, 2009. "Understanding the alliance data," Strategic Management Journal, Wiley Blackwell, vol. 30(3), pages 233-260, March.
    26. Andrew W. Lo, 2013. "Introduction to Volume 5 of the Annual Review of Financial Economics," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 1-7, November.
    27. Niron Hashai, 2015. "Within-industry diversification and firm performance—an S-shaped hypothesis," Strategic Management Journal, Wiley Blackwell, vol. 36(9), pages 1378-1400, September.
    28. Gautam Ahuja, 2000. "The duality of collaboration: inducements and opportunities in the formation of interfirm linkages," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 317-343, March.
    29. Tyson B. Mackey & Jay B. Barney & Jeffrey P. Dotson, 2017. "Corporate diversification and the value of individual firms: A Bayesian approach," Strategic Management Journal, Wiley Blackwell, vol. 38(2), pages 322-341, February.
    30. Kathleen M. Eisenhardt & Claudia Bird Schoonhoven, 1996. "Resource-based View of Strategic Alliance Formation: Strategic and Social Effects in Entrepreneurial Firms," Organization Science, INFORMS, vol. 7(2), pages 136-150, April.
    31. Shyam Kumar & Jong Chool Park, 2012. "Partner Characteristics, Information Asymmetry, and the Signaling Effects of Joint Ventures," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 33, pages 127-145, March.
    32. Bing‐Sheng Teng, 2007. "Corporate Entrepreneurship Activities through Strategic Alliances: A Resource‐Based Approach toward Competitive Advantage," Journal of Management Studies, Wiley Blackwell, vol. 44(1), pages 119-142, January.
    33. Robert Audi & Tim Loughran & Bill McDonald, 2016. "Trust, but Verify: MD&A Language and the Role of Trust in Corporate Culture," Journal of Business Ethics, Springer, vol. 139(3), pages 551-561, December.
    34. Alberto Abadie & Guido W. Imbens, 2006. "Large Sample Properties of Matching Estimators for Average Treatment Effects," Econometrica, Econometric Society, vol. 74(1), pages 235-267, January.
    35. Belén Villalonga, 2004. "Diversification Discount or Premium? New Evidence from the Business Information Tracking Series," Journal of Finance, American Finance Association, vol. 59(2), pages 479-506, April.
    36. Vojislav Maksimovic & Gordon M. Phillips, 2013. "Conglomerate Firms, Internal Capital Markets, and the Theory of the Firm," Annual Review of Financial Economics, Annual Reviews, vol. 5(1), pages 225-244, November.
    37. Robert E. Hoskisson & Jeffrey Covin & Henk W. Volberda & Richard A. Johnson, 2011. "Revitalizing Entrepreneurship: The Search for New Research Opportunities," Journal of Management Studies, Wiley Blackwell, vol. 48, pages 1141-1168, September.
    38. Bharat N. Anand & Tarun Khanna, 2000. "Do firms learn to create value? The case of alliances," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 295-315, March.
    39. Alfred D. Chandler, 1991. "The functions of the HQ unit in the multibusiness firm," Strategic Management Journal, Wiley Blackwell, vol. 12(S2), pages 31-50, December.
    40. Joanne E. Oxley & Rachelle C. Sampson, 2004. "The scope and governance of international R&D alliances," Strategic Management Journal, Wiley Blackwell, vol. 25(8‐9), pages 723-749, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. T. Ravichandran & Chaoqun Deng, 2023. "Effects of Managerial Response to Negative Reviews on Future Review Valence and Complaints," Information Systems Research, INFORMS, vol. 34(1), pages 319-341, March.
    2. Steffen Nauhaus & Johannes Luger & Sebastian Raisch, 2021. "Strategic Decision Making in the Digital Age: Expert Sentiment and Corporate Capital Allocation," Journal of Management Studies, Wiley Blackwell, vol. 58(7), pages 1933-1961, November.
    3. Joullié, Jean-Etienne & Gould, Anthony M., 2023. "One truth and one standard for its telling: Reporting on and about scientific business research," Journal of Business Research, Elsevier, vol. 157(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Sven Kunisch & Markus Menz & David Collis, 2020. "Corporate headquarters in the twenty-first century: an organization design perspective," Journal of Organization Design, Springer;Organizational Design Community, vol. 9(1), pages 1-32, December.
    2. Stienstra, Miranda, 2020. "The determinants and performance implications of alliance partner acquisition," Other publications TiSEM 7fdee0c2-d4d2-4f5b-95e3-2, Tilburg University, School of Economics and Management.
    3. Ljubownikow, Grigorij & Ang, Siah Hwee, 2020. "Competition, diversification and performance," Journal of Business Research, Elsevier, vol. 112(C), pages 81-94.
    4. Mehmet Nasih Tağ, 2022. "The Dark Side of Firm Diversity: An Empirical Examination of the Impact of Firm Diversity on Resource Allocation Efficiency in Multidivisional Firms," Istanbul Business Research, Istanbul University Business School, vol. 51(2), pages 643-668, November.
    5. Kim, Sehoon, 2020. "Disappearing Discounts: Hedge Fund Activism in Conglomerates," MPRA Paper 100876, University Library of Munich, Germany.
    6. Jaeho Choi & Anoop Menon & Haris Tabakovic, 2021. "Using machine learning to revisit the diversification–performance relationship," Strategic Management Journal, Wiley Blackwell, vol. 42(9), pages 1632-1661, September.
    7. Raffaele Morandi Stagni & Juan Santaló & Marco S. Giarratana, 2020. "Product‐market competition and resource redeployment in multi‐business firms," Strategic Management Journal, Wiley Blackwell, vol. 41(10), pages 1799-1836, October.
    8. Siraj, Ibrahim & Hassan, M. Kabir & Maroney, Neal, 2020. "Product demand sensitivity and the corporate diversification discount," Journal of Financial Stability, Elsevier, vol. 48(C).
    9. Mo Chen & Aseem Kaul & Brian Wu, 2019. "Adaptation across multiple landscapes: Relatedness, complexity, and the long run effects of coordination in diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 40(11), pages 1791-1821, November.
    10. Hovakimian, Gayané, 2016. "Excess value and restructurings by diversified firms," Journal of Banking & Finance, Elsevier, vol. 71(C), pages 1-19.
    11. Teresa A. Dickler & Timothy B. Folta, 2020. "Identifying internal markets for resource redeployment," Strategic Management Journal, Wiley Blackwell, vol. 41(13), pages 2341-2371, December.
    12. Emilie R. Feldman, 2021. "The corporate parenting advantage, revisited," Strategic Management Journal, Wiley Blackwell, vol. 42(1), pages 114-143, January.
    13. Kolasinski, Adam C., 2009. "Subsidiary debt, capital structure and internal capital markets," Journal of Financial Economics, Elsevier, vol. 94(2), pages 327-343, November.
    14. Garrido-Prada, Pablo & Delgado-Rodriguez, Maria Jesús & Romero-Jordán, Desiderio, 2019. "Effect of product and geographic diversification on company performance: Evidence during an economic crisis," European Management Journal, Elsevier, vol. 37(3), pages 269-286.
    15. Grass, Gunnar, 2010. "The impact of conglomeration on the option value of equity," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 3010-3024, December.
    16. Charles A. Brown & Chris R. McNeil, 2008. "Internal capital market subsidies and industry downturns," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(3), pages 337-361, September.
    17. Krammer, Sorin M.S., 2016. "The role of diversification profiles and dyadic characteristics in the formation of technological alliances: Differences between exploitation and exploration in a low-tech industry," Research Policy, Elsevier, vol. 45(2), pages 517-532.
    18. Marco S. Giarratana & Martina Pasquini & Juan Santaló, 2021. "Leveraging synergies versus resource redeployment: Sales growth and variance in product portfolios of diversified firms," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2245-2272, December.
    19. Jorge Walter & Christoph Lechner & Franz W. Kellermanns, 2008. "Disentangling Alliance Management Processes: Decision Making, Politicality, and Alliance Performance," Journal of Management Studies, Wiley Blackwell, vol. 45(3), pages 530-560, May.
    20. Qiming Li & Wenhuan Wang & Yiping Lou & Ke Cheng & Xiaoguang Yang, 2016. "Diversification and Corporate Performance: Evidence from China’s Listed Energy Companies," Sustainability, MDPI, vol. 8(10), pages 1-17, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jomstd:v:57:y:2020:i:8:p:1690-1717. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2380 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.