Strategic alliances with competing firms and shareholder value

Competing effectively in dynamic environments requires innovation. Strategic alliances have been proposed as an efficient means to access the resources needed for innovation. Previous research has demonstrated significant positive effects of alliance formation on firm value. We propose, however, that increased transactions costs required to gain commitment to an alliance between direct competitors reduce the value created by such alliances. This results in smaller stock market reactions to the formation of these alliances than for alliances between non-competing firms. Using a sample of 89 high technology alliances, we provide evidence that gains to shareholders involved in alliances among competitors are significantly lower than those involved in non-competitor alliances. These results may suggest that direct-competitor alliances may be an inefficient means for innovating