Effect of Alliance Network Asymmetry on Firm Performance and Risk

Abstract

Persistent high failure rates of new product alliances call for identification of factors that might improve alliance outcomes. In this research, the authors identify two attributes of alliance network asymmetry that affect alliance performance and performance uncertainty: differences in the number of prealliance direct ties, which can create asymmetry in the volume of resources of the two firms, and differences in the interconnectivity among prealliance indirect ties, which leads the firms to possess different types of resources. The authors theorize that absolute levels of such asymmetries have curvilinear effects on alliance performance and performance uncertainty, which materialize as a focal firm’s abnormal returns and risk, respectively. They demonstrate that direct tie asymmetry has an inverted U-shaped effect on the focal firm’s abnormal returns and a U-shaped effect on its risk. Indirect tie asymmetry also has a U-shaped effect on the focal firm’s risk. However, the focal firm’s innovation quality and preexisting ties with its partner flatten these curvilinear effects. The findings have implications for partner selection in new product alliances.