Strategic Alliances and the Boundaries of the Firm

50 Pages Posted: 14 Dec 2001

See all articles by David T. Robinson

David T. Robinson

Fuqua School of Business, Duke University; National Bureau of Economic Research (NBER); Duke Innovation & Entrepreneurship Initiative

Multiple version iconThere are 2 versions of this paper

Date Written: June 15, 2006

Abstract

Strategic alliances are long-term contracts between legally distinct organizations that provide for sharing the costs and benefits of a mutually beneficial activity. In this paper, I develop and test a model that helps explain why firms sometimes prefer alliances over internally organized projects. I introduce managerial effort into a model of internal capital markets and show how strategic alliances help overcome incentive problems that arise when headquarters cannot pre-commit to particular capital allocations. The model generates a number of implications, which I test using a large sample of alliance transactions in conjunction with Compustat data. Supporting the model, I find that alliances cluster in risky, high-growth, high-tech industries, and that they typically occur between industries with different risk characteristics. Likewise, among multi-division firms with alliances, the alliance activity tends to occur in an industry that is riskier, on average, than the other industries in which the firm operates. Alliances are used to pursue related diversification, and facilitate projects that are riskier than a firm's mainstream activities.

JEL Classification: G3, K22, L22

Suggested Citation

Robinson, David T., Strategic Alliances and the Boundaries of the Firm (June 15, 2006). Available at SSRN: https://ssrn.com/abstract=293721 or http://dx.doi.org/10.2139/ssrn.293721

David T. Robinson (Contact Author)

Fuqua School of Business, Duke University ( email )

100 Fuqua Drive
Durham, NC 27708-0120
United States
919-660-8023 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Duke Innovation & Entrepreneurship Initiative ( email )

215 Morris St., Suite 300
Durham, NC 27701
United States

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