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Alliances and Corporate Governance

Andriy Bodnaruk

University of Notre Dame - Mendoza College of Business

Massimo Massa

INSEAD - Finance

Andrei Simonov

Michigan State University - Eli Broad Graduate School of Management; Centre for Economic Policy Research (CEPR); Gaidar Institute for Economic Policy; SITE

November 13, 2009

AFA 2011 Denver Meetings Paper

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 CEO 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 particularly 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.

Number of Pages in PDF File: 51

Keywords: alliances, corporate governance, abnormal return and profitability

JEL Classification: G34, G23, G32

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Date posted: November 16, 2009 ; Last revised: February 1, 2014

Suggested Citation

Bodnaruk, Andriy and Massa, Massimo and Simonov, Andrei, Alliances and Corporate Governance (November 13, 2009). AFA 2011 Denver Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1505652 or http://dx.doi.org/10.2139/ssrn.1505652

Contact Information

Andriy Bodnaruk
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Massimo Massa (Contact Author)
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)
Andrei Simonov
Michigan State University - Eli Broad Graduate School of Management ( email )
315 Eppley Center
East Lansing, MI 48824-1122
United States
HOME PAGE: http://www.andreisimonov.com
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Gaidar Institute for Economic Policy ( email )
3-5 Gazetny Lane
Moscow, 125009
SITE ( email )
P.O. Box 6501
S-113 83 Stockholm, 11383
Feedback to SSRN

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