Cultural Similarity as In-Group Favoritism: The Impact of Religious and Ethnic Similarity on Alliance Formation and Announcement Returns
41 Pages Posted: 20 Oct 2014 Last revised: 25 Jun 2015
Date Written: February 19, 2015
Strategic alliance research has shown that national cultural similarity between partner firms has a positive influence on cross-border alliance formation and performance. Yet, cultural similarity can also give rise to in-group favoritism that leads partner firms of similar cultural backgrounds to establish strategic alliances for defending their shared identities, which can result in suboptimal alliance decisions. To investigate the existence of in-group favoritism associated with cultural similarity, we examine the influence of cross-regional religious and ethnic similarity in the U.S. on domestic strategic alliance formation and alliance announcement returns. We find that dyadic religious similarity and ethnic similarity between U.S. states positively affect the volume of interstate alliance activities, but religious similarity and ethnic similarity are negatively associated with combined alliance announcement returns of partner firms. These findings suggest that cross-regional religious and ethnic similarity facilitates interstate alliance activities between U.S. states, but investors seem to interpret alliance decisions that can be potentially driven by in-group favoritism negatively.
Keywords: Strategic alliance; religion; ethnicity; culture
JEL Classification: G34; M14; Z1
Suggested Citation: Suggested Citation