Information Environment Characteristics of Strategic Alliances

Abstract

Strategic alliances are voluntarily initiated cooperative agreements between firms, which involve exchanging, sharing and developing resources (Gulati, 1995). Separating financial activities of the partner firms' entity from those of the strategic alliances is an ongoing challenge for accounting practitioners both in terms of financial and tax reporting issues (Wallman, 1995). This challenge is especially severe in contractual alliances, where the involved firms do not form a new corporate entity that is separate from the parent organization. In this study we find that the information environments of firms involved in such arrangements, termed contractual alliances, are broadly associated with indicators of low quality accounting information. Relative to other firms, they have higher levels of discretionary accruals, lower accrual quality, and earnings that are less persistent, less smooth, less relevant, less timely, and less conservative. They also have lower earnings response coefficients.

Keywords: Information Environment, Strategic Alliances, ERC

JEL Classification: M41, M43, M44, C21, C22, D82, G34, L14