The Effect of Inter‐firm Managerial Social Ties on Alliance Formation: How Poorly Embedded Firms Overcome Network Disadvantages

Abstract

AbstractRecent research suggests pre‐existing network structural dynamics can hamper inter‐organizational alliance formation, particularly for poorly embedded firms. However, this research fails to fully explain how poorly embedded firms can overcome these structural barriers when forming alliances. This study adds to the existing knowledge on network dynamics by proposing how interpersonal relational embeddedness alleviates such constraints and facilitates alliance formation of firms poorly embedded in existing alliance networks. We highlight the informational and sociological benefits of inter‐firm managerial social ties (IFMSTs) formed through interpersonal social experiences beyond those originated from prior business exchange activities between potential partnering firms. Our empirical investigation employs an extensive sample of US public firms and shows strong evidence that IFMSTs help poorly embedded firms overcome the obstacles imposed by their inferior network structure embeddedness when forming alliances. The negative effect of inferior network structural embeddedness is more muted by IFMSTs when both firms in a dyad are at the periphery of the alliance network than when they occupy asymmetric structural positions. This mitigation effect of IFMSTs is more salient when the ties originate from activity‐based social experiences than from shared educational affiliations.