Inter-Firm Connections, Alliance Formation and the Value Created by Alliances

Yun Liu, Tomas Mantecon (), Sabatino Dino Silveri () and Wei Sun ()
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Yun Liu: Keck Graduate Institute, Claremont Colleges, 215 York Place, Claremont, CA 91711, USA
Tomas Mantecon: Department of Finance, Insurance, Real State and Business Law, University of North Texas, 1167 Union Circle, Denton, TX 76201, USA
Sabatino Dino Silveri: FAB 442, Department of Finance, Insurance and Real Estate, University of Memphis, Memphis, TN 38152, USA
Wei Sun: Department of Finance, Insurance and Real Estate, University of Memphis, Memphis, TN 38152, USA

Quarterly Journal of Finance (QJF), 2020, vol. 10, issue 04, 1-38

Abstract: We investigate the impact of inter-firm connections on alliances. We find that both professional connections and social connections, borne out of board interlocks, employment ties and educational ties, increase the likelihood of alliance formation. In addition, the market reacts more favorably to alliance announcements in the presence of such connections, and this positive valuation effect increases with the degree of information asymmetry between the partner firms. Our findings are consistent with inter-firm connections creating value because they facilitate the flow of information between partner firms, thereby reducing moral hazard concerns and the risk of ex-post opportunistic behavior.

Keywords: Alliances; inter-firm connections; social networks; information asymmetry (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2010139220500196

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