How Does a Partner's Acquisition Affect the Value of the Alliance?

Abstract

Our study examines how a partner’s acquisition affects the value created and captured by the firm given the nature of its associations with the partner and with the partner’s acquisition target. We conjecture that business similarity between the firm and the acquisition target undermines value creation and capture, whereas business complementarity with that target creates value. We then contend that the relational embeddedness between the firm and its partner mitigates the negative effect of business similarity with the target while reinforcing the positive effect of their complementarity. Using an event study methodology, our analysis offers support to the opposing effects of business similarity and complementarity, but counters the predictions relating to the moderating effects of relational embeddedness. We conclude that if a partner acquires a target that competes with the firm, this indicates the breakdown of trust in their embedded relationship and creates a risk of knowledge spillover, which undermines the firm’s value creation and capture from the alliance. In addition, relation-specific routines can become rigid, which may prevent the firm from leveraging the complementary resources of the partner’s acquisition target.