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RFS Advance Access originally published online on January 5, 2008
Review of Financial Studies 2008 21(2):649-681; doi:10.1093/rfs/hhm084
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© The Author 2008. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Strategic Alliances and the Boundaries of the Firm

David T. Robinson
Fuqua School of Business, Duke University

Address correspondence to David T. Robinson, One Towerview Drive, Durham, NC 27708; e-mail: davidr{at}duke.edu.

JEL Classification: G32, D21, D23


  Abstract

Strategic alliances are long-term contracts between legally distinct organizations that provide for sharing the costs and benefits of a mutually beneficial activity. In this paper, I develop and test a model that helps explain why firms sometimes prefer alliances over internally organized projects. I introduce managerial effort into a model of internal capital markets and show how strategic alliances help overcome incentive problems that arise when headquarters cannot pre-commit to particular capital allocations. The model generates a number of implications, which I test using a large sample of alliance transactions in conjunction with Compustat data.

This paper is based on portions of my dissertation. I am indebted to my dissertation committee: Luigi Zingales (chair), Steven N. Kaplan, Per Strömberg, and Toby Stuart. I have also benefited from discussions with Ulf Axelson, Harry DeAngelo, Denis Gromb, J.B. Heaton, Kewei Hou, Raghu Rajan, Matt Rhodes-Kropf, Daniel Wolfenzon, and Andy Wong. Seminar participants at Arizona State, the Batten Young Scholars Conference, Columbia, Cornell, Duke, Harvard, LBS, Maryland, Michigan, NYU, Rutgers, Texas, UNC, USC, Wharton, and the 2002 WFA provided valuable comments. I am especially grateful to Gordon Phillips and Rich Mathews for extensive comments on an earlier draft. Bob McDonald (the editor) and an anonymous referee provided many helpful comments and suggestions on the current draft. Any errors are my own.


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