We propose that in addition to its resources and capabilities, a firm’s capital structure and financial health will act as an important determinant of its attractiveness as an alliance partner. Alliances with leveraged firms are prone to unplanned termination due to financial distress, which puts at risk the value embedded in the collaboration. As a result, ceteris paribus, highly leveraged firms will be viewed as less desirable partners in the market for interfirm collaboration when compared to low leverage firms. In support of this proposition, we find that when forming an alliance firms tend to partner with other firms with similar levels of leverage: low-leverage firms partner with other low-leverage firms while high-leverage firms partner with other high-leverage firms, as well as with lower quality ones. Furthermore, we show that alliances with highly leveraged firms are more likely to involve equity participation as a form of ex post protection, especially when they involve partners with relatively lower leverage. Finally, we show that leverage is negatively related to the intensity of alliance activity, suggesting that firms also maintain lower leverage in their capital structure in order to attract potential partners. Overall our results imply that financial policies regarding capital structure have an important role to play in alliancing activity.
The authors wish to thank the volume editor Belén Villalonga and two anonymous reviewers for their valuable and insightful comments, which helped improve the chapter. The authors would also like to thank Giovanna Lo Nigro for her useful suggestions on the ideas developed in this chapter.
Zambuto, F., Kumar, M.V.S. and O’Brien, J.P. (2014), "Financial Health and Partner Attractiveness in the Market for Inter-Firm Collaboration", Finance and Strategy (Advances in Strategic Management, Vol. 31), Emerald Group Publishing Limited, pp. 147-184. https://doi.org/10.1108/S0742-332220140000031004Download as .RIS
Emerald Group Publishing Limited
Copyright © 2014 Emerald Group Publishing Limited