A Transaction Cost Perspective of Alliance Portfolio Diversity

Alliance portfolio diversity (APD) helps firms access diverse capabilities and knowledge. APD can also increase transaction costs, but it is unknown whether and how transaction cost theory’s (TCT’s) insights about hierarchical integration operate at the portfolio level. We adapt TCT to the portfolio...

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Bibliographic Details
Published in:Journal of management studies 2020-09, Vol.57 (6), p.1073-1105
Main Authors: Penney, Christopher R., Combs, James G.
Format: Article
Language:English
Subjects:
alliance portfolio configuration
alliance portfolio diversity
alliance portfolios
Alliances
Costs
diversification
Portfolios
Transaction costs
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Summary:Alliance portfolio diversity (APD) helps firms access diverse capabilities and knowledge. APD can also increase transaction costs, but it is unknown whether and how transaction cost theory’s (TCT’s) insights about hierarchical integration operate at the portfolio level. We adapt TCT to the portfolio level to suggest that the transaction costs from APD encourage integration into alliance partners’ industries, and we introduce the concept of shared‐specific investments to pinpoint one source of transaction costs within portfolios and predict which industries will be integrated. Using data from 1996–2013 on S&P 500 firms, we find evidence in support of our theorising. Juxtaposing results with other theoretical perspectives suggests that TCT offers complementary insights about which activities to perform in the firm versus the alliance portfolio.
ISSN:0022-2380
1467-6486
DOI:10.1111/joms.12518