Stick together or break apart? Stigmatizing adverse events, media vilification, and unplanned alliance dissolution

Abstract Research Summary This article advances the understanding of alliance instability by integrating organizational stigma and signaling theories to explain unplanned alliance dissolution after potentially stigmatizing adverse events. We highlight the media as a key intermediary influencing whether partners stick together or break apart. We also argue that firm status and external corporate governance serve as signals that key stakeholders interpret differently, that is, amplifying media vilification but mitigating the event's impact on partners' decision to dissolve the alliance. Using a sample of US passenger airlines from 1985 to 2016, our findings support the view that it takes more than a stigmatizing event to disrupt an alliance. By establishing boundaries for stigmatization effects and contextualizing firm‐specific signals, we offer a nuanced explanation of the mechanisms driving alliance instability. Managerial Summary Firms inevitably face adverse events, from uncontrollable accidents to errors, resulting in severe consequences such as diminished valuation and damaged reputation. In such situations, executives of the firm affected by an adverse event must decide whether to rely on their alliance partners to stick with their firm or prepare for the eventuality that partners will run away. To address this question, we conducted a 31‐year study of 40 publicly traded US airline companies. Our findings underscore the impact of negative media coverage on unplanned alliance dissolution, surpassing the influence of event characteristics; they draw the attention of affected firms’ executives to the dual implications of their firms’ status and external corporate governance – a double‐edged sword that requires careful consideration.