Internal Resource Allocation and External Alliance Activity of Diversified Firms

Document Type

Article

Publication Date

12-1-2020

Abstract

Prior research suggests that diversified firms are often unable to match resources to the market needs and opportunities of their divisions due to factors such as influence activities. In this research, we propose that when such internal inefficiencies arise, diversified firms may form alliances to access resources externally to support their divisions in their industries and operations. Using a sample of US firms between 1997 and 2006, we find that, on average, diversified firms form more alliances within industries that they currently operate in when compared to single business firms. The alliancing activity in related industries increases when businesses with diverse growth opportunities exist within the same firm, and it decreases with the intensity of internal control and coordination mechanisms. Our study suggests a link between internal resource allocation processes and external alliancing activity, while highlighting that alliances may play an important role in how diversified firms manage the inefficiencies that arise within their boundaries.

Publication Source (Journal or Book title)

Journal of Management Studies

First Page

1690

Last Page

1717

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