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

See all articles by Wei Shi

Wei Shi

University of Miami; University of Miami - Department of Management

Yinuo Tang

University of Pittsburgh - Katz Graduate School of Business

Date Written: February 19, 2015

Abstract

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

Shi, Wei and Shi, Wei and Tang, Yinuo, Cultural Similarity as In-Group Favoritism: The Impact of Religious and Ethnic Similarity on Alliance Formation and Announcement Returns (February 19, 2015). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2511258 or http://dx.doi.org/10.2139/ssrn.2511258

Wei Shi (Contact Author)

University of Miami ( email )

FL FL
United States

University of Miami - Department of Management ( email )

United States

Yinuo Tang

University of Pittsburgh - Katz Graduate School of Business ( email )

Pittsburgh, PA 15260
United States

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