Run away or stick together: the impact of firm misbehavior on alliance partners’ defection in China

When the alliance partner is found to conduct misbehaviours, will the nonstricken firm respond by defection or sticking together? Drawing on the theory regarding uncertainty in exchange, we propose that partner misbehaviours incur two kinds of uncertainty, identity threat (i.e., possibility of being stigmatized by association) and efficiency threat (i.e., possibility of failure in realizing the goals of alliance). Both identity threat and efficiency threat will drive the nonstricken firm to defect. Our analysis of 457 instances of misbehaviour involving equity-based alliances of Chinese publicly listed firms across 2001–2013 reveals that when partner misbehaviour hurt the nonstricken firm’s identity (i.e., identity threat) or affect its rational pursuit of goals (i.e., efficiency threat), the nonstricken firm is more likely to respond by defection. Moreover, we also found that the nonstricken firm’s dependence on the alliance weakened the relationships between identity (efficiency) threat and defection. Our results advance our understanding of how firms manage and respond to other firms’ misbehaviour in an alliance context, providing an event-based view of alliance dynamics.