Alliance formation and firm performance: an inverse U-shaped relationship?

This research examines a relationship of diminishing returns between a firm's number of alliances and performance. Moreover, as alliance formations increase, negative returns may set in. Rising interdependency between firms, bounded rationality constraints of management, as well as resource overlaps and possible knowledge leakage are expected to overcome the more positive learning effects as alliance experience increases. The excistence of this inverse U-shaped relationship is tested on a sample of 179 firms operating in the pharmaceutical industry from 1990 to 1999. Support for diminishing returns as well as a linear relation are found. The linear model contains a better fit to the data, rejecting a possible inverse U-shaped relationship.