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Alliances and corporate governance

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  • Bodnaruk, Andriy
  • Massa, Massimo
  • Simonov, Andrei

Abstract

We study the link between a firm's quality of governance and its alliance activity. We consider alliances as a commitment technology that helps a company’ Chief Executive Officer overcome agency problems that relate to the inability to ex ante motivate division managers. We show that well-governed firms are more likely to avail themselves of this technology to anticipate ex post commitment problems and resolve them. The role of governance is particularly important when the commitment problems are more acute, such as for significantly risky/long-horizon projects (“longshots”) or firms more prone to inefficient internal redistribution of resources (conglomerates), as well as in the absence of alternative disciplining devices (e.g., low product market competition). Governance also mitigates agency issues between alliance partners; dominant alliance partners agree to a more equal split of power with junior partners that are better governed. An “experiment” that induces cross-sectional variation in the cost of the alliance commitment technology provides evidence of a causal link between governance and alliances.

Suggested Citation

  • Bodnaruk, Andriy & Massa, Massimo & Simonov, Andrei, 2013. "Alliances and corporate governance," Journal of Financial Economics, Elsevier, vol. 107(3), pages 671-693.
  • Handle: RePEc:eee:jfinec:v:107:y:2013:i:3:p:671-693
    DOI: 10.1016/j.jfineco.2012.09.010
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    3. Inder K. Khurana & William J. Moser & K. K. Raman, 2018. "Tax Avoidance, Managerial Ability, and Investment Efficiency," Abacus, Accounting Foundation, University of Sydney, vol. 54(4), pages 547-575, December.
    4. Müller, Jens & Weinrich, Arndt, 2020. "Tax knowledge diffusion via strategic alliances," arqus Discussion Papers in Quantitative Tax Research 253, arqus - Arbeitskreis Quantitative Steuerlehre.
    5. Cremers, K.J. Martijn & Litov, Lubomir P. & Sepe, Simone M., 2017. "Staggered boards and long-term firm value, revisited," Journal of Financial Economics, Elsevier, vol. 126(2), pages 422-444.
    6. Di Giannatale, Paolo & Passarelli, Francesco, 2018. "Integration contracts and asset complementarity: Theory and evidence from US data," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 192-222.
    7. Maurizio Cisi & Francesco Devicienti & Alessandro Manello & Davide Vannoni, 2016. "The Impact of Formal Networking on the Performance of SMEs," Working papers 039, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    8. Maurizio Cisi & Francesco Devicienti & Alessandro Manello & Davide Vannoni, 2016. "The Impact of Formal Networking on the Performance of SMEs," Working papers 039, Department of Economics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    9. Bodnaruk, Andriy & Manconi, Alberto & Massa, Massimo, 2016. "Cross-border alliances and risk management," Journal of International Economics, Elsevier, vol. 102(C), pages 22-49.
    10. Tomas Mantecon & Kyojik Song & Haowen Luo, 2016. "The Control and Performance of Joint Ventures," Financial Management, Financial Management Association International, vol. 45(2), pages 431-465, May.
    11. Maurizio Cisi & Francesco Devicienti & Alessandro Manello & Davide Vannoni, 2020. "The advantages of formalizing networks: new evidence from Italian SMEs," Small Business Economics, Springer, vol. 54(4), pages 1183-1200, April.
    12. Patrizia Pastore & Antonio Ricciardi & Silvia Tommaso, 2020. "Contractual networks: an organizational model to reduce the competitive disadvantage of small and medium enterprises (SMEs) in Europe’s less developed regions. A survey in southern Italy," International Entrepreneurship and Management Journal, Springer, vol. 16(4), pages 1503-1535, December.
    13. Jianping Qi & Ninon K. Sutton & Qiancheng Zheng, 2015. "The Value of Strategic Alliances in Acquisitions and IPOs," Financial Management, Financial Management Association International, vol. 44(2), pages 387-430, June.

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    More about this item

    Keywords

    Alliances; Corporate governance; Abnormal return; Profitability;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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