Does accounting quality matter in strategic alliances? Evidence from alliance contract provisions

• In Event: Accounting Information and Real Effects

Abstract

I examine relations between accounting quality and alliance contract provisions. Strategic alliances are cooperative agreements between two firms, such as the recent alliance between Google and an Italian eyewear company to produce Google glasses. Although alliance contracts are common and economically significant, there is sparse evidence on the interaction of accounting with such contracts I investigate whether alliance partner firm accounting quality influences contract provisions, which I denote “operational governance” terms. Primary findings suggest that partner firms with poor quality accounting have relatively more operational governance terms in the alliance contracts. This result is true for both accounting and non-accounting operational governance provisions. Findings are magnified among smaller (less dominant) partner firms and alliance activities with more relationship-specific investments. The evidence suggests that accounting quality is an important determinant of operational governance terms in alliance contracts.

Author

• Yuan Ji, George Washington University