How do Status Differentials Affect the Unplanned Dissolution of Alliances?

Abstract

AbstractPrevious research suggests that firms tend to form alliances with counterparts of similar status. However, it remains unclear whether the principle of status homophily helps or hinders the alliance process. In this study, we contend that status differentials, rather than status similarity, can reduce the likelihood of the unplanned dissolution of an alliance, as a clearer order of status helps to resolve interfirm discrepancies and conflicts during collaborative processes. The results based on a sample of joint ventures in the US computer and telecommunications industries support our arguments. Further, we find that the effect of status differentials on the unplanned dissolution of alliances is strengthened when the high‐status firm performs better than the low‐status firm and when the two firms are from more related industries. Our findings call into question the emphasis on status homophily in the management of alliances following their formation.