Two essays on corporate social responsibility in strategic alliances : formation and value creation

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Ali, Husain
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Accordingly, we examine in the second essay the impact of firms' partnerships with socially responsible companies on firm value. We argue that firms forming alliances with socially responsible companies experience higher cumulative abnormal returns than firms partnering with companies that are not socially responsible. We also argue that small partners and nonequity alliances have higher abnormal returns when partnering with socially responsible companies; large partners and equity alliances do not. Finally, we propose that the larger the size difference between partnering firms, the greater the CSR's impact of the partner on firm value for the smaller partner. Applying an event-study approach to 902 observations or 451 announcements of strategic alliances over 1991-2010, our analysis supports our hypotheses.
This dissertation consists of two distinct but interconnected essays on corporate social responsibility (CSR) and strategic alliances. In the first essay, we examine the role of firms' CSR activities on firms' likelihood of forming strategic alliances. In the second essay, we investigate the effects of partnering with a socially responsible company on firm value.
Defined as firm collaboration involving exchanging, sharing, or co-developing products, technologies, services, capital, or firm-specific assets to pursue a common set of goals or to meet a critical business need, strategic alliances are important ways for firms to gain multiple benefits. Firms, for example, can overcome market failure, gain market share, learn from one another, access complementary assets, enhance legitimacy, build new competencies, enter new markets, develop new technologies, enhance innovativeness and new product development, and improve early performance. The number of strategic alliances has increased substantially over the last two decades, making it one of the most prevalent organizational forms in the market.
Similarly, corporate social responsibility (CSR) has been getting increased attention from both academics and practitioners alike, due to its multiple benefits and managers' rapid integration. Scholars define CSR broadly as firm activities that appear to support or advance social causes that go beyond the interest of the firm and that which is required by the law.
The literature on CSR is vast, but its role in strategic alliances is almost nonexistent. Many researchers and practitioners argue that CSR is an important element of organizations' success and decision-making processes. Yet its existence in the strategic alliance literature is limited to partnerships with nongovernmental organizations (NGO).
Using both transaction cost economics (TCE) and resource-based view (RBV) as our theoretical platform for both essays, we argue in the first essay that CSR can increase firms' likelihood of forming alliances. Drawing from corporate social responsibility (CSR) literature, we posit that positive/good CSR activities can measure firms' trustworthiness. We also believe that CSR can provide information about the company, thereby reducing information asymmetry, and can attract loyal customers via successful product-differentiation strategy and advertising.
Our analysis of 24,320 firm-year observations for 4,134 firms and 4,457 alliances over the 1991-2010 period indicates that the greater a firm's positive/good CSR is, the more likely it is to form alliances. This relationship increases at a decreasing rate. We also find that the impact of firms' positive/good CSR activities on alliance formation is weaker for firms with alliance experience. Finally, our results show that firms with no prior alliance experience tend to rely on advertising intensity to make stakeholders aware of their CSR activities, hence increasing its impact on alliance formation.
Researchers, however, find that the partners in most strategic alliances fail to capture the value created from such activities. Despite its popularity across different disciplines and its impact on firm value, studies of corporate social responsibility (CSR) are almost nonexistent within the strategic-alliance and value-creation literature.
We analyze 451 alliances of 759 companies over the 1991-2010 period and find that partnering with socially responsible firms positively affects value creation. We also find that when relational risk is high and other control systems are lacking, CSR affects firm value. The results show that in nonequity alliances, firms partnering with socially responsible companies experience higher cumulative abnormal returns than firms partnering with companies that are not socially responsible; however, in equity alliances, a partner's CSR does not affect firm value. Examining smaller partners produces similar results.
December 2014
School of Management
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Rensselaer Polytechnic Institute, Troy, NY
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