Unlocking Strategic Alliances: The Role of Common Institutional Blockholders in Promoting Collaboration and Trust

Abstract

This paper examines the role of common institutional blockholders (CIB) in promoting strategic alliances and facilitating the transfer of human capital between alliance firms. We find that firms are more likely to form strategic alliances, including R&D, licensing, manufacturing, and marketing alliances, when they share CIBs with a larger proportion of their industry competitors. To establish a causal relationship, we leverage the annual Russell 1000/2000 index reconstitutions. Our firm-pair level analysis indicates that when two firms share a CIB, they have a higher likelihood of forming strategic alliances. Furthermore, we show that R&D alliance firms connected through CIBs exhibit a greater cross-partner redeployment of R&D-related human capital than those without CIB connections, increasing the benefits from alliance formation. Overall, our findings underscore the significance of CIB ownership in reducing distrust which can hinder the establishment of strategic alliances and in reaping the economic benefits resulting from such alliances.

Keywords: Common Institutional Blockholders, Strategic Alliances, Corporate Innovation

JEL Classification: G23, G32, O31, O32