Department/School

Finance

Date of this version

2020

Document Type

Article

Keywords

Strategic Alliances, Policy Uncertainty, Relational risk, Counterparty risk, Behavioral Finance, Investments, Corporate Collaborations

Abstract

Prior studies on capital investments, including mergers and acquisitions, point to investment irreversibility as the primary factor behind diminished investments during periods of increased policy uncertainty. We show that increased relational risk, due to the potential for counterparty misbehavior or shirking and higher contracting costs, appears to be the primary driver behind the diminished propensity to undertake strategic alliances during enhanced policy uncertainty regimes. Alliances are even less likely during such times when they (a) involve more than two firms, (b) are in industries with greater counterparty risk, and (c) involve partners that require intense contracts.

Published in

Financial Management

Creative Commons License

Creative Commons Attribution-Share Alike 4.0 License
This work is licensed under a Creative Commons Attribution-Share Alike 4.0 License.

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