Impact of ESG distinctiveness in alliances on shareholder value

Abstract

Prior research documents that strategic alliances help firms create shareholder value by gaining access to partner’s complementary marketing and technology resources. Apart from these resources, we argue that firms can also access reputational assets of their alliance partner, based on the partner’s Environmental, Social, and Governance (ESG) performance. However, the alliance literature overlooks the effect of partner’s ESG performance on shareholder value creation. In the present study, we build on the knowledge differentials logic to propose that deviations in a firm’s ESG-specific knowledge and expertise compared to those of its alliance partner—what we term “ESG distinctiveness”—can affect a firm’s shareholder value. Using data on alliance formation announcements by public U.S. firms between 2003 and 2020, we find that firms gain value from forming alliances with high ESG performance partners. The effect of ESG distinctiveness on shareholder value due to alliance formation is stronger for firms with greater prior partnering experience.