Momentum, Imitation and Partner Selection in Nascent and Mature Product Markets

Abstract

AbstractDetermining which partners to ally with is a key strategic decision for managers. Many studies suggest that firms select alliance partners by rationally evaluating their quality, but it is possible that information asymmetry and managers’ limited cognitive capacity actually drive firms to adopt behavioural strategies like momentum and imitation to make decisions. This study examines how momentum and imitation affect firms’ selection of partners in nascent and mature product markets. We suggest that the absolute, relative and interactive impacts of momentum and imitation on alliance partner selection decisions change as a product market evolves from its nascent stage to maturity. Evidence from 13,071 partner selection decisions initiated by Chinese fund firms largely supports these predictions. Specifically, as a nascent product market moves towards maturity, the effect of momentum on partner selection decisions becomes weaker, while that of imitation grows stronger. However, momentum is more influential than imitation in both nascent and mature product markets. Momentum diminishes the effect of imitation on partner selection decisions in nascent and mature product markets, but this substitute effect is weaker in mature product markets than in nascent ones.