Inter‐Firm Coopetition and Credit Ratings: How the Debt Market Reacts to Inter‐Firm Coopetition
| Published date | 01 October 2023 |
| Author | Cara Droege,Andrea Greven,Denise Fischer‐Kreer,Malte Brettel |
| Date | 01 October 2023 |
| DOI | http://doi.org/10.1111/1467-8551.12689 |
British Journal of Management, Vol. 34, 2093–2115 (2023)
DOI: 10.1111/1467-8551.12689
Inter-Firm Coopetition and Credit Ratings:
How the Debt Market Reacts to Inter-Firm
Coopetition
Cara Droege,1Andrea Greven,2Denise Fischer-Kreer1and Malte Brettel1
1Innovation and Entrepreneurship Group (WIN) – TIME Research Area, RWTH Aachen University,
Kackertstr. 7, 52072, Aachen, Germany 2Chair of Entrepreneurship – WHU - Otto Beisheim School of
Management, Campus Vallendar, Burgplatz 2, 56179, Vallendar, Germany
Corresponding author email: cara.droege@time.rwth-aachen.de
Due to the high importance and severe consequences of credit ratings, we investigate the
effect inter-rm coopetition—simultaneous cooperation and competition—has on credit
ratings. So far, coopetition research has disregarded its effect on the debt market and
research on credit ratings has not considered this evermore occurring mode of alliance.
Given the combination of debtholders’ high risk sensitivity and coopetition’s paradoxical
characteristics entailing high risks and potentially high returns, we hypothesize: First,
rms who engage in coopetition enjoy higher credit ratings in general. Second, neverthe-
less, coopetition increases the likeliness of a credit rating downgrade in the short term.
Third, rms can weaken the initial, negative reactionthrough partner selection. Empiri-
cal testing with a large-scale, cross-industry sample containing 2569 public rms over a
time span of 20 years supports our rst two hypotheses. A deeper analysis also validates
our third hypothesis. Our research contributes to both literature streams by building on
paradox theory and thereby revealinga dark side of coopetition.
Introduction
This paper analyses if and how inter-rm
coopetition—simultaneous cooperation and
competition—affects a rm’s credit rating. In
particular, we investigate if r ms that engage in
coopetition benet from higher credit ratings. The
unique, paradoxical characteristics of inter-rm
coopetition distinguish it from purely cooperative
alliances bearing higher risks and potentially gen-
erating high returns (e.g. Bouncken et al., 2015).
The paradox coopetition received much atten-
tion in research and in practice in the last years
(Devece, Ribeiro-Soriano and Palacios-Marqués,
2019). Research has shown that cooperating with
a direct competitor leads to positive nancial
outcomes, such as an increase in sales, market
share and prot margin (Bouncken and Fredrich,
2012), as well as return on equity (Luo, Rind-
eisch and Tse, 2007). However, the focus of
research on the outcomes of coopetition has so
far mostly been on rm performance and innova-
tion performance, nding predominantly positive
results (Gernsheimer, Kanbach and Gast, 2021).
When considering the effect of coopetition on
the nancial market, the debt market has not yet
been considered. Our motivation for this research
paper is to offer a holistic view of coopetition’s
effect on the nancial market and to estimate the
relevance of strategic actions, in this case engaging
in coopetition, in the context of credit ratings.
Credit ratings play a decisiverole for rms when
accessing the debt market. As credit ratings speak
to the rm’s creditworthiness (Kisgen, 2006), they
give an estimate on the probability of a rm’s risk
of nancial default and thus on the probability of
the rm being able to pay back their debt (Bon-
sall, Holzman and Miller, 2017). Other than in the
© 2022 The Authors.British Journal of Management published by John Wiley & Sons Ltd on behalf of BritishAcademy
of Management.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs Li-
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commercial and no modications or adaptations are made.
2094 Droege et al.
equity market, debtholders are interested in the
downside or the risk of a company and its actions,
leaving them more risk sensitive (Bonsall, Holz-
man and Miller, 2017). Thus, credit ratings deter-
mine the cost of debt a rm faces (John, Lynch
and Puri, 2003), since the debtholders want to be
compensated for the risk of not receiving their re-
payment. As a result, its credit rating is of high
importance to a rm. The debt market’s reaction
to coopetition is especially interesting due to its
unique distinctions compared to purely coopera-
tive alliances. So far, researchers have analysed the
effect strategic alliances have on the debt market.
For example, Chen, King and Wen (2015) con-
sider the bondholders’ perspective and show how
strategic alliance and joint ventureannouncements
create value for them. Chou, Ou and Tsai (2014)
take on the rm’s perspective, proving strategic al-
liances to advance a rm’s standing in the debt
market by lowering its cost of debt.
As coopetition’sparadoxical tensions set it apart
from purely cooperative alliances, combining the
high risks and possibly high returns associated
with and resulting from coopetition with high
risk sensitivity of debtholders offers a thought-
provoking scenario. This predicament urges us to
differentiate between the effect of coopetition on
credit ratings in general and in the short term.
First, we address the following researchquestions:
Does coopetition inuence a rm’s creditrating? If
so, how does it inuence the credit rating?Second,
given the theoretical foundationof ourresearch we
go a step further and consider if this reaction to
coopetition differs in the short term considering
the relative values of credit ratings in prior years.
Third, we ask: Can a rm inuence this short-term
effect through its partner selection in a coopetitive
alliance?
To answer these research questions, paradox
theory offers a broad understanding of the poten-
tial outcome of coopetition. We consider the con-
ceptual framework of coopetition developed by
Gnyawali and Ryan Charleton (2018), highlight-
ing the paradoxical tensions coopetition presents,
which distinguish it from pure cooperation. Espe-
cially,the balance of cooperation and competition
within a coopetitive alliance is crucial when ad-
dressing the third research question. After under-
lining the critical factors for credit ratings, we de-
rive three hypotheses to answer the research ques-
tions. We empirically test the research questions
using a large-scale, cross-industry panel dataset
covering a time span of 20 years. Our results show
that rms which engage in more coopetition, in
general, enjoy higher credit ratings. Nevertheless,
more coopetition is positively related to a poten-
tial initial downgrade in credit ratings. Our main
results do not show that a higher share of bal-
anced coopetition is negatively related to a po-
tential initial downgrade in credit rating. How-
ever, after deeper analysis through various robust-
ness checks we can nd a negative relationship be-
tween the share of balanced coopetition and ini-
tial downgrade in credit ratings. While rms most
likely do not choose to engage in coopetition with
the intent to inuence their credit rating, this so far
unknown outcome has implicationsof highimpor-
tance for the rm.
This study contributes to research in several
ways. First, considering research on credit rat-
ings our results provide evidence that credit rat-
ing agencies consider the strategic decision to en-
gage in coopetition when evaluating a rm’s cred-
itworthiness. Additionally, our in-depth analysis
of this relationship pointing out an initial nega-
tive reaction in the short term advances credit rat-
ing research by considering diverseresults. Second,
our insights offer a new view of coopetition’s ef-
fect on the nancial market since coopetition re-
search has not yet considered the effect on the
debt market. Hence, our research also contributes
to coopetition research revealing a—at least in
the short term—dark side of coopetition. Third,
our theoretical contribution based on combining
coopetition’sparadoxical characteristics and para-
dox theory emphasizes coopetition’s embedded-
ness in paradox theory regarding its ongoing the-
ory development. By juxtaposing paradox theory
and contingency theory relying on the former in
this context we offer a new potential approach to
the short-term negative reaction of credit ratings
to the paradox coopetition. Additionally, coopeti-
tion research so far has been based on case stud-
ies and survey data limiting generalizability of re-
sults (Dorn, Schweiger and Albers, 2016; Ritala,
2012). We enhance researchon coopetition by em-
pirically testing our hypotheses with a large-scale,
cross-industry dataset.
© 2022 The Authors.British Journal of Managementpublished by John Wiley & Sons Ltd on behalf of British
Academy of Management.
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