A Behavioral Perspective on the Choice of Alliance Governance Mode

Abstract

This study provides a behavioral perspective on the firm’s choice of alliance governance mode. We argue that a firm’s choices between equity and non- equity alliances are influenced by two firm-level determinants, namely that firm’s attainment discrepancy and its CEO career horizon. We posit that positive attainment discrepancies motivate firms to engage in non-equity alliances to pursue more flexibility, while negative attainment discrepancies encourage firms to search for alternatives in equity alliances to achieve more performance recovery and growth. Furthermore, we argue that firms that are managed by CEOs with short career horizons may be associated with more behavioral uncertainties as their CEOs near their retirement, and thus become less likely to engage in long-term partnerships, such as equity alliances. In contrast, we posit that firms that are managed by CEOs with long career horizons are more likely to pursue closely related equity alliances to bolster their learning from that alliance. Using a sample of 5,542 alliances conducted between 1995 and 2015 by 202 by publicly-traded U.S. firms, we provide evidence for our arguments.