Breaking Up to Move Forward: The Value Gains of Alliance Terminations

Prior alliance research in marketing has largely focused on factors that enhance alliance stability. Yet alliance terminations can also be valuable, in that they are intricately linked with firms’ strategies to (re)allocate resources to create financial value. The basic premise of this study is that an alliance termination increases firm value when investors interpret it as the firm's intention to reallocate resources toward more promising market opportunities. The key question is how investors arrive at that interpretation. Prior literature suggests that the diversity of a firm's alliance portfolio informs investors about its resource (re)allocation strategy. This argument relies on three assumptions: (1) firms face uncertainty, (2) resources invested in the terminated alliance are redeployable, and (3) the diverse alliance portfolio offers resource reallocation opportunities. These assumptions form the basis for the development of a contingency framework. Moderators are identified to capture (1) firms’ competitive environment and exposure to macroeconomic risk, (2) the fungible nature versus alliance-specificity of resources invested in the terminated alliance, and (3) efficiency and overlap with other alliances in the portfolio. An event study of 427 firm-alliance termination announcements during 1985–2020 supports the predictions. The combined findings shed new light on alliance terminations, contributing to marketing theory and practice.