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Alliances and Corporate Governance

51 Pages Posted: 16 Nov 2009 Last revised: 1 Feb 2014

Andriy Bodnaruk

University of Illinois at Chicago

Massimo Massa

INSEAD - Finance

Andrei Simonov

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

Date Written: November 13, 2009


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.

Keywords: alliances, corporate governance, abnormal return and profitability

JEL Classification: G34, G23, G32

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: or

Andriy Bodnaruk

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
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 )

645 N. Shaw Lane, 321 Eppley Center
East Lansing, MI 48824-1122
United States


Gaidar Institute for Economic Policy ( email )

3-5 Gazetny Lane
Moscow, 125009

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

SITE ( email )

P.O. Box 6501
S-113 83 Stockholm, 11383

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