What Goes around Comes around: The Impact of Marketing Alliances on Firm Risk and the Moderating Role of Network Density

Although the value gained from partnership formation (through alliances) or through the firm's position in a network has received significant research attention, little is known about the risks that can accompany this increasing reliance on partners. The authors investigate the change in firm idiosyncratic and systematic risks after the announcement of marketing alliances and analyze whether the density of the firm's network of alliance partners moderates the risk exposure, demonstrated through investors' expectations of a firm's risk or the equity risk of a firm. The results indicate that marketing alliances reduce firm risk, so long as the alliance is a novel connection between the partnering firms. Furthermore, at high levels, the interconnectedness of partners or density of a firm's network can cause idiosyncratic risk to increase, and the density of a partner's network can also result in increases in systematic risk of a firm after alliance formation.