Due Diligence in International Alliances: Performance Outcomes and the Moderating Effect of Geographic Distance and Partner-Specific Experience

There is a general assumption in the literature that due diligence is a vital ex ante step in alliance formation. However, the actual relationship between alliance performance and due diligence has not been empirically studied. Drawing on theoretical insights from information economics, we address this issue in international alliances, considering each party's due diligence investigations. Demonstrating that due diligence is indeed beneficial for performance, we go a step further and show that this beneficial effect is negatively moderated where contextual factors affect the information environment. We find that both geographic distance which increases information asymmetries and partner-specific experience which decreases information asymmetries lessen the value generation potential of due diligence. This paper thus confirms the assumption in the literature and also introduces contextual limitations. This paper therefore helps address the cost-benefit scenario of due diligence.