Governance mechanism alignment at the top and operating levels of alliance hierarchy: reconciling two competing schools of thought

Purpose: This paper aims to examine alliance governance at different hierarchical levels. Design/methodology/approach: The data is collected from both top-level and operating-level managers in 286 strategic alliances in China (a total of 572 managers). Hierarchical moderated regression models are adopted to test the hypotheses and two-stage regression analyzes are used to correct for endogeneity. Findings: This paper finds that relational governance has a greater impact on alliance performance than contract utilization at the top level. Furthermore, the simultaneous use of relational governance at the top and operating levels have a detrimental impact on alliance performance. Finally, top-level contract utilization has a negative interaction with operating-level relational governance but a positive interaction with operating-level contract utilization. Research limitations/implication: First, the cross-sectional nature of the data collection approach provides only a snapshot of how each type of governance mechanism and its interactions affect alliance performance. Second, the sample is limited to firms located in emerging markets. Practical implications: Managers should realize that the effectiveness of contract and relational governance mechanisms varies across different management levels and they should be cautious about the cross-level governance mechanism alignment. Originality/value: This study advances the interfirm governance literature in that this paper examined alliance governance at different hierarchical levels and provides new insights into the ongoing debate on whether the contract and relational governance mechanisms function as complements or substitutes by exploring the governance alignment across different alliance hierarchies.