Growing Beyond Firm Boundaries Through Strategic Alliances: Role of Labor Market Frictions

Using the staggered adoption of state-level employment regulations, we find that firms subject to increased labor costs significantly increase their strategic alliances, favoring collaboration with other firms to pursue growth over internal investments. These effects are more significant for high-growth firms and those engaged in risky, innovative projects. Following the law’s adoption, firm growth declines, but this decline is attenuated among firms with alliances. By highlighting the role of labor market friction as an important determinant of how firms organize their economic activities, we establish that firms adjust their boundaries to circumvent the negative growth impacts imposed by employment regulations.

JEL Classification: G34, J63, K31, L22, O32

Suggested Citation: Suggested Citation

Kim, Hyemin and Lee, Min Suk and Low, Angie and Kang, Jingoo, Growing Beyond Firm Boundaries Through Strategic Alliances: Role of Labor Market Frictions (November 16, 2023). Nanyang Business School Research Paper No. 22-29, Available at SSRN: https://ssrn.com/abstract=4177199 or http://dx.doi.org/10.2139/ssrn.4177199