Signals and international alliance formation: The roles of affiliations and international activities

Abstract

This paper extends signaling theory to the study of firms' international alliances. Signals can be valuable in facilitating these collaborations because they reduce the risk of adverse selection surrounding cross-border partnerships. We specifically investigate whether firms' affiliations with prominent financial intermediaries enable the formation of international collaborative agreements. We also argue and find that the signaling benefits of these affiliations diminish with the firm's engagement in international activities, which can function as alternative signals by which firms convey the quality of their resources and prospects. Examining firms' cross-border activities helps to identify new and important signals that are unique to the international setting. Moreover, this also helps contextualize prior theory and findings that exist in the domestic setting on the effects of affiliations with financial intermediaries such as venture capitalists and investment banks. We conclude that signaling theory offers a promising addition to existing theories of international alliances and other cross-border activities. We contrast some of the main arguments and predications of signaling theory with other theories used in international business, and we emphasize the research opportunities that exist for employing this perspective in international business studies in the future.

SME internationalization modes in the German biotechnology industry: The influence of imitation, network position, and international experience

“…This observation is in line with prior research that relates a firm's status to privileged firms' propensity to deviate from activities common in its industry (e.g., Phillips & Zuckerman, 2001;Washington & Zajac, 2005). However, although the positive, legitimacy enhancing impact of affiliations with prominent alliance partners is recognized in the recent international business literature (e.g., Reuer & Ragozzino, 2014), and status considerations have received increasing attention in recent research in organization theory (Piazza & Castellucci, 2014) and strategic management (e.g., Stern, Dukerich, & Zajac, 2014), these findings are novel in the context of SME internationalization and warrant further investigation.…”

“…Dacin, Oliver, and Roy (2007) suggest that the formation of alliances in general can be considered as an attempt of a firm to gain legitimacy. Similarly, Reuer and Ragozzino (2014) highlight the legitimacy enhancing signaling effect of collaborative international activities. Thus in an attempt to gain legitimacy in the marketplace, firms connect to competitors as well as to other private and institutional actors in a way they perceive to be desired by their stakeholders.…”

Family involvement and firms’ establishment mode choice in foreign markets

“…Conversely, the acquisition of a local company constitutes the quicker way to access resources that are difficult to acquire via arm's length transactions, for example, the foreign firm's knowledge base (Reiche, Harzing, & Pudelko, 2015). However, acquisitions bring their own set of risks, mainly related to adverse selection and moral hazard relevant to the seller-acquirer relationship (Reuer & Ragozzino, 2014). Several studies have investigated factors explaining how firms resolve the establishment mode tradeoff and there is a call for further research on the topic (Hennart & Slangen, 2014).…”

Do They Know Something We Don't? Endorsements from Foreign MNCs and Domestic Network Advantages for Start‐Ups

“…A start-up with a better reputation can acquire more resources needed to survive (Rao, 1994;Stuart et al, 1999). Endorsements from legal authorities, governmental bodies, and other powerful organizations (Delmar and Shane, 2004;Rao, 1994;Reuer and Ragozzino, 2014) provide sociopolitical legitimacy to a start-up. An endorsement is imperfect information that, according to decision theory, serves as a proxy that rational actors use in forming expectations they have about the performance of others (Fombrun and Shanley, 1990;Rao, 1994).…”