The alliance paradox: why project collaboration increases firm-level operational risk

Abstract

Purpose This study shifts attention from the prevailing assumption that project alliances serve as project-level risk-mitigation mechanisms towards a cross-level perspective examining how alliance participation may reshape the risk profile of participating firms. Integrating the Resource-Based View (RBV) with the Behavioral Theory of the Firm (BTF), this research investigates whether and how participation in a temporary project alliance is associated with elevated firm-level operational risk. Design/methodology/approach Using a panel dataset of publicly listed civil engineering construction firms in China from 2009 to 2022, this study examines the relationship between alliance participation and firm-level operational risk. The empirical analysis employs panel regression models with fixed effects, supplemented by entropy balancing to address selection bias, instrumental variable estimation to address endogeneity, and additional robustness checks. Findings Project alliance participation is positively associated with, rather than attenuates, firm-level operational risk. Two mediating pathways are identified. The behavioral pathway operates through strategic aggressiveness whereby the shared-risk environment of alliances may foster bolder strategic decisions at the firm level. The structural pathway operates through vertical integration whereby alliance-related capability accumulation may encourage internalization of activities, thereby increasing organizational rigidity. The risk-enhancing association is stronger when firms collaborate with commercial partners, when internal control quality is weak, and when environmental uncertainty is high. Originality/value This study contributes to the literature by demonstrating that project alliances, while designed to mitigate risk at the project level, may generate unintended consequences at the firm level. By integrating BTF and RBV, the study offers a dual-pathway explanation linking alliance participation to firm-level operational risk through behavioral and structural mechanisms. More broadly, it extends project alliancing research from a project-centric perspective to a cross-level view that considers how temporary inter-organizational arrangements may reshape the operating outcomes of participating firms.