Traces of Life After Death: Exploring the Effect of Alliance Termination on Interfirm Learning

Abstract

Organizational scholars have extensively examined the antecedents to strategic alliance termination, but have mostly ignored the disruptive consequences of termination for organizations. Moreover, extant research on interfirm learning outcomes has paid little attention to alliance temporal nature and rarely considered learning beyond the active life of the alliance. To remedy these gaps, this study explores how alliance terminations in the life science industry are associated with subsequent interfirm learning in the period from 1990-2006. We apply a rigorous difference-in- differences estimation to a carefully constructed sample of terminated and surviving alliances to offer evidence that alliance termination significantly reduces interfirm learning. We argue that these effects may be more abrupt than previously expected and show the rate of learning decay accelerates as time passes after termination. We hypothesize on conditions that may support and diminish the traces of interfirm learning that survive the termination of the alliance agreement. Our results are particularly relevant in dynamic environments where firms must constantly weigh alternative knowledge sources and innovation strategies. We discuss further implications of our findings for theory and practice on alliances, innovation and organizations.