Impact of inter-firm cooperation on company's performance: a comparative analysis of European Union and Russia

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The Government of the Russian Federation

the Federal State Autonomous Educational Institution

of Higher Professional Education

"National Research University "Higher School of Economics"

Faculty of Economics

Department of Financial Management

GRADUATION THESIS

On the topic: Impact of inter-firm cooperation on company's performance: a comparative analysis of EU and Russia

Student: Oksana S. Kabakova

Supervisor: Anna A. Bykova

Consultant: Anna A. Bykova

Perm

2014



Contents

Abstract

Introduction

1. Literature Review

1.1 Inter-firm Cooperation Phenomenon: Types and Definitions

1.2 Potential Impact of Cooperation on a Company

1.3 Inter-firm Cooperation and Financial Performance

2. Research design

2.1 Case-study Analysis vs Econometric Modelling

2.2 Hypotheses Development

3. Methodology

3.1 Analytical Model

3.2 Variables

3.3 Survey Sample

3.4 Data Description and Analysis

3.5 Growth, Crisis, Recovery Period: Determination

4. Results

4.1 Regression Model

4.2 Estimation Results and Hypotheses Validation

4.3 Discussion and Implications

Conclusion

Acknowledgments

References

Appendix 1

Appendix 2

Appendix 3

Appendix 4

Appendix 5

Appendix 6

Appendix 7

Appendix 8



Abstract

Nowadays, the problem of improving financial performance is exacerbating for a firm that aims to increase value and attract investors. At the same time, the approach, according to which it is considered that companies involved in cooperation with other market players gain a competitive advantage, has become popular among scientists and practitioners. This paper is devoted to the identification of the differences in the influence of company's participation in inter-firm relationships on financial performance between European Union and Russian companies.

In order to conduct the empirical analysis, we used data for 823 EU and 556 Russian firms, for the period from 2004 to 2011. Using Hausman-Taylor method, we revealed that participation in inter-firm relationships increases Economic Value Added of both European and Russian companies if analyze this relationship during 8-year period.

However, some differences in the effects of cooperation between EU and Russia with regard to particular stages of the economy cycle, i.e. growth, crisis and recovery periods were found.

In Russia inter-firm cooperation stimulates financial performance in the growth period more intensively than in the crisis times, while the influence becomes negative in the recovery period. In EU, in turn, cooperation drives EVA both in the prosperity and recession periods, being more intensive in the crisis, and has statistically insignificant influence on financial performance after crisis.

This implies that financial results of cooperation may be highly sensitive to the environment and economy conditions under which the phenomenon is tested, so future researchers should take it into account.

From the practical point of view, our findings prove that it is beneficial for investors to put money in companies which are engaged in the long-term partnerships rather than isolated firms. At the same time, managers and directors of such firms should undertake additional control measures to avoid opportunistic behavior of its partners in the crisis and recovery times, especially in Russia.



Introduction

Deep transformation of the modern world is manifested in the radical change of social and economic relations. This led to the appearance of various inter-firm cooperation forms: networks, alliances, conglomerates, clusters, etc. Such phenomenon shifted the standard firm-management concepts, and the assumption that the financial result of the company depends entirely on the optimization of its individual actions was refuted. (Rademakers, 1999)

Inter-firm cooperation has been previously studied in the framework of such disciplines as industrial organization, economic sociology and corporate finance, which reflects the complexity and width of the subject. There is a wide range of research discussing the types of cooperation that are now available to firms, reasons which may lead to the decision to form a partnership and potential advantages for a firm participating in such relationships. (George et al., 2002; Ritala and Ellonen, 2010; Wu and Callahan, 2005) In general, researches consider cooperation as a strategic competitive advantage of the company which may provide access to such additional features as knowledge and technology, allow economies of scale and help to reduce risks. (Singh and Power, 2009; Ritala and Ellonen, 2010) Moreover, according to several researchers, cooperation with other organizations may be one the ways of improving firm's financial performance and driving companies' value. (Bayona et al., 2001; Gibson et al., 2011)

However, still not all empirical studies prove the exceptional benefits of inter-firm cooperation. For example, is was shown that cooperation in some cases damages industry as well as particular companies' development and prevent competition through collusion and monopolistic cartels. (Dahan et al., 2006) Additionally, there is an opinion that positive outcomes of cooperation practices are highly sensitive to particular conditions as Nieto and Santamarнa (2007) proved that partnership may damage novelty of innovation in case when company tries to cooperate with a competitive firm, while this relationship is positive for a vertical cooperation.

We support the opinion that benefits of inter-firm cooperation prevails its negative sides, especially when talking about company's financial performance. At the same time, we favor the idea that conditions of when and where the analysis of this phenomenon is conducted may significantly influence the way how cooperation affects financial performance. So, in the present paper we will, firstly, pay attention to inter-firm cooperation in countries with different macro- and microeconomic as well as financial conjunctures, such as Germany, Italy, France, Spain and the UK, which represent the European Union and are considered to be developed, and Russia that is still developing. The difference in the economy development stage leads to the diversities in business processes, so cooperation may have various consequences for firm's performance as well. Secondly, it is of a particular interest to study the inter-firm collaboration return on company's performance in crisis times, as well as before and after the recession, because we assume that financial results of cooperation in Russia and EU may vary dramatically depending on the general state of economy.

Thus, the research question of current paper is: "How does the influence of inter-firm cooperation on financial performance of the company change under various economy conditions and environment?"

It is highly relevant nowadays to study the effects of collaboration on performance as world economy experienced a severe recession in 2008-2009 and there is a need for firms to develop a new and, at the same time, effective crisis and after-crisis management strategies and cooperation may be one of them. This research is topical for potential investors as knowledge about whether inter-firm cooperation drives financial performance of a company and, additionally, how country and stage of economy cycle influences it, is essential in the process of making investment decision. Moreover, the proof that inter-firm cooperation has positive impact on performance may also help managers and consultants of those companies which try to decide if they want to arrange a cooperation agreement or not.

According to the research design, paper is divided into five parts. To make the argument about the importance of inter-firm relationships more convincing, it is essential to start with the study of special features of the inter-firm cooperation phenomenon through the literature review. It is followed by a description of the hypotheses and discussion of the possibility to use econometric modelling, namely, Hausman-Taylor method, to validate them. Then, we discuss the database collection approach and analysis of the obtained data for Russian and EU companies, as well as chosen variables and analytical form of the model. The forth part covers the estimation results, hypotheses testifying and discussion part. In the fifth and last part we discuss the conclusions, limitations, delimitations and future directions of the research.



1. Literature Review

Present paper concentrates on the impact of inter-firm cooperation on company's performance in different countries and economy conditions, such as crises. Since the idea that financial performance may be influenced by the presence of partnership between companies has been developed not so long ago, the issue has not yet received an unequivocal appraisal of the academic society. That is why the literature review concentrates on the concept of inter-firm cooperation and influence of long-term partnerships on a company and its performance.

In this section we will, firstly, focus on a review of inter-firm cooperation phenomenon, various definitions and classifications of inter-firm cooperation are discussed. Additionally, attention is paid to the diversities between different types of partnerships. Secondly, we will consider what potential results cooperation may have on a company and its performance. Then, we will give a more detailed look at the financial performance of a company, how cooperation influences it and what contradictions it may cause.

1.1 Inter-firm Cooperation Phenomenon: Types and Definitions

In a few past decades, inter-firm collaboration has become quite popular issue in the literature devoted to organizational management, corporate finance, economic sociology and other spheres. All these disciplines study inter-organizational cooperation from different aspects and try to find answers to different questions, such as: how to govern the partnership, what is the impact of cooperation on a company, how partnership agreement influences employees of participating organizations and so on. As a result of such variety of purposes and concepts, there is no single generally accepted definition of the term "inter-firm cooperation" as these disciplines study the phenomenon from different sides and authors often use particular and the most suitable forms and, hence, definitions of inter-organizational cooperation in their analysis.

This variety of cooperation types includes such forms as industry clusters, business groups, strategic networks, joint ventures, R&D partnerships, alliances and strategic alliances, supply chains, etc. Table 1 contains information about how cooperation has been perceived by different authors in both latest and most influential works on the topic.

As we see, although there are several types of cooperation (and the list of forms presented in the table is not exhaustive), they all share the same characteristics and features, namely:

a) partnership of two or more firms which remain autonomous;

b) shared goals;

c) mutual control over activities/resources/assets.

Table 1

Classification by different types of cooperation

Type	Definition	Authors
Industry clusters	a set of interconnected organizations supporting innovation in a particular industry or sector of the economy	Audretsch and Feldman, 2004
	a group of firms that are specialized by sector, or related industries located in geographically near to each other	Kongmanila and Takahashi, 2009
Business groups	coalitions of firms from multiple industries that interact over long periods of time and that are distinguished by elaborate inter-firm networks of lending, trade, ownership and social relations	Keister, 2007
(Strategic) Network	a select, persistent and structured set of autonomous firms engaged in creating products or services based on implicit and open-ended contracts to adapt to environmental contingencies and to coordinate and safeguard exchanges	Jones et al., 1997
Joint ventures	organizational units created and controlled by two or more parent-companies and as such they increase the organizational interdependence of the parent companies.	Hagedoorn, 2002
R&D partnerships	specific set of different modes of inter-firm collaboration where two or more firms, that remain independent economic agents and organizations, share some of their R&D activities.	Hagedoorn, 2002
Strategic alliances	voluntary cooperative inter-firm agreements aimed at achieving competitive advantage for the partners	Tushar K. Das and Teng, 2000
Alliance	voluntary agreement between firms involving exchange, sharing or co-development of products, technologies or services	Gulati, 1998
Supply chain	strategic coalition of two or more firms to facilitate joint effort and collaboration in one or more core value creating activities	Maheshwari et al., 2006

Note: Definitions adopted from the research papers by authors presented in Column 3

Moreover, inter-firm cooperation types may be distinguished by market agents with whom this agreement is established. According to this classification, we may consider three types of partnerships: vertical (with customers and suppliers), horizontal (with competitors), which is also called coopetiton, and diagonal (with firms and organizations operating in other sectors). (Rademakers, 1999)

Vertical cooperation is an arrangement between producers of complementary goods and services or long-term agreement with buyers to purchase several consignments. Partners in such relationships have a fundamental interest to stay loyal in order to gain the highest gain. Horizontal cooperation, in turn, is rather peculiar type of cooperation, as it combines two completely opposite paradigms: competition and cooperation. It may be defined as an agreement between producers of substitutes to cooperate, through which firms establish mutual obligations, implement a process of joint adaptation and combine their value. Contradiction between the cooperative and competitive type of interaction is integrated in organizations involved in competitive partnership, and therefore the adoption of contradictions and consistency of organizational goals is the main organizational stages in the process of creation and maintaining a competitive cooperation. Diagonal partnerships are relationships between firms from different industries, or between companies and such organizations as universities, hospitals or governments.

Additionally, we may differentiate cooperation by its motives, which may be strategic or efficiency increasing. Strategic incentives include joining products and skills, getting of the market share, knowledge acquisition, lowering information asymmetry, etc. From an efficiency viewpoint, considerations as decreasing transaction costs, achieving economies of scale, and improving financial results may be the drivers of collaboration agreements. (Bayona et al., 2001; Patrakosol and Olson, 2007; Sanz Menйndez and Garcнa, 1997) We will discuss these motives in more detail in the next part of this chapter.

After the analysis of different classifications and narrower definitions of cooperation, we may conclude that, despite some differences between them, it is possible to research inter-firm cooperation in its general sense, rather than focusing on a particular type (as most of the authors previously did) due to the contiguity of their definitions. We also educed that it is better to concentrate on such collaborations, which are built on a formal legal contract (e.g. alliances, holdings, clusters, and so on) as such relationships are easier to track and analyze.

Summing up, cooperation may be broadly defined "as the establishment of long-term relations between legally and economically independent market agents." (Ginevicius, 2010) This definition reflects the general idea of the cooperation phenomenon and allows us to move on the next part and study what motives and expectations firms consider while considering cooperation opportunities.

1.2 Potential Impact of Cooperation on a Company

In this part of our research we discuss the incentives (motives) which the company takes into account making decisions about cooperation, and dimensions, namely, operational, organizational, technological and financial, through which collaboration may affect company. It should be noted that the existing number of research papers devoted to the topic of inter-firm cooperation shows that this phenomenon is still looked as from positive as well as negative point of view.

Most part of papers reflects an opinion of scholars as well as practitioners that companies can get a number of advantages through the cooperation agreements. Generally, it is considered that cooperation enhances the competitive power of companies and facilitates industry development. (Feldman et al., 2005) More formally, the motives of cooperation and, respectively, its potential impact on a company, can be explained in terms of the following three approaches: resource-based, transaction costs and knowledge-based.

According to the resource-based concept, the firm represents a unique resource base, and its association with the set of another entity's resources, in turn, is the primary motivation for the joint activities of the enterprises.(Conner, 1991) This is connected with the fact that most of resources are considered to be firm-specific and hard to imitate as well as possessing such features as low mobility and lack of substitutes, which makes companies heterogeneous in terms of their resources. (Tushar K. Das and Teng, 2000) So, firms which operations are closely related with the presence of a huge amount of various resources, including capital, materials, qualified personnel, etc., often experience severe difficulties while accessing all the required assets. Some research showed that if the company is acting alone, the process of obtaining resources is largely expensive process requiring a lot of time, while developing long-term agreements with other market players may help to solve the problem of scarce resources and benefit all partners involved in the partnership.(George et al., 2002) In this case, cooperation acts as the way to reduce uncertainty and risk, as well as to gain access to the resources of other companies. (Pfeffer and Salancik, 2003)

Even though authors studied the resource-based view on inter-firm cooperation using different terms, for example, property rights concept (Ramanathan et al., 1997) or the organizational capability perspective (Madhok, 1997), the general reason to enter cooperation agreement is to aggregate, share, or exchange essential resources with other companies when these resources cannot be efficiently received through usual market trade. All in all, cooperation established because of resource-based incentives mostly connected with the desire of a firm to increase its value through the attempt to find the optimal and most effective combination of resources. (Tushar K. Das and Teng, 2000). That is why this approach is widely used while explaining cooperation initiatives in industrial sectors where technological synergies help to increase value of a company and stimulate the improvement in performance through stimulation of production and also to comment on the inter-industrial collaborations. (Franco and Haase, 2013)

Additionally, the motive for creating long-term inter-firm relationships may be a reduction in costs associated with the transfer of ownership, i.e. transaction costs. This arises, for example, in the relationships between the company and its suppliers, even if they are considered to be reliable and loyal. In this case the company is forced to develop detailed, often requiring assistance of professional lawyers, contracts, in order to protect itself from opportunistic behavior. In case of inter-firm alliances, on the other hand, the cost of protection against opportunistic behavior may decrease due to the fact that companies act as one unit, and the final result depends on the contribution of each partner in the activities of the partnership.(Oxley, 2009)

Previous two theories explain the tendency of firms to cooperate through desire of a company to increase its resource base or reduce transaction costs are considered to be classic, while the knowledge-based approach is a newer and more modern concept. This approach has been developed from the resource-based view on the cooperation formation and states that external linkages with other market agents, such as competitors, suppliers or academic and science institutions may act as a conduit to technological knowledge access, causing its sharing rather than hostile acquiring or theft through industrial espionage. (Grant, 1996) Access to knowledge may be considered as the dominant reason for the development of long-term partnerships within the knowledge-intensive manufacturing enterprises in such sectors as pharmaceuticals, aerospace, telecommunications or in service industry, which is also highly knowledge demanding. (Grant and Baden-Fuller, 2004)

While explaining the benefits of cooperation in order to access knowledge, authors mention such factors as, for example, simplified process of knowledge exploration. Firms in collaboration may get access to the already existing developments of partners or, alternatively, share R&D costs which decreases knowledge creation expenses of each partner. It was also empirically proved that cooperation with various types of partners leads to the diversity of knowledge networks and increases the probability of achieving innovation because of the variety of knowledge to be shared. (Tsai, 2009) Secondly, partnership agreements lead to more effective knowledge application. The effectiveness of exploitation increases as acting in collaboration, in general, improves the ability to integrate different types of knowledge when separate ?rms specializing in different areas of knowledge linked by some well-established partnership contract. Moreover, cooperation improves the ability to utilize knowledge to its full capacity which is also important for more productive knowledge application. (Grant and Baden-Fuller, 2004)

Despite all the positive factors of cooperation that we mentioned above, there is evidence that inter-firm cooperation may have negative impact. For example, authors who try to discredit inter-organizational collaboration say that it damages industry as well as particular companies' development and prevent competition through collusion and monopolistic cartels. (Dahan et al., 2006) Moreover, it was shown that positive expectations from cooperation practices are highly sensitive to particular conditions. For example, Nieto and Santamarнa (2007) proved that partnership may damage novelty of innovation in case when company tries to cooperate with a competitive firm, while this influence is positive for vertical cooperation. Additionally, Goerzen (2007) who studied repeated partnerships showed they have negative effect on firm's performance especially in environments with great technological uncertainty. This may mean that there is a possibility that for different economy conditions (such as crisis/non crisis) and/or for countries with various features (developed/developing) the influence of inter-firm cooperation on companies may differ.

1.3 Inter-firm Cooperation and Financial Performance

The review of cooperation motives presented above makes believe that when firm arranges a cooperation agreement, it is governed only by the fact that it will be able to improve the activities associated with the particular dimension, for instance, to get more resources or to decrease transaction costs. However, the financial projection of each strategic decision is one of the most important for a firm, since the main purpose of the enterprise is obtaining returns on investments, achieving profit targets and increasing the value of the enterprise. (Richard et al., 2009) These objectives and indicators are resultant, i.e. reflecting how the company has performed in other non-financial aspects, as showed in the financial result. As a result, all the goals and targets of other components should be linked to one or more objectives of the financial component. That is why firm considering the partnership agreement is often concerned about how this collaboration will affect its finances and performance in the first place. (Lahiri and Narayanan, 2013)

At the same time, the idea that company's performance may not only depend on tangible resources such as machinery or inventory, but also on intangible assets, which are usually not included in financial statements has recently received much attention. A number of research papers indicate a significant proof that intellectual capital, which is intangible, influences profitability. For instance, (Chen et al., 2005) empirically proved that intangibles like education on personnel (human capital), brand power (relational capital), innovative activities (structural capital), etc. create financial efficiency, increase productivity and drive financial performance and company's value.

Inter-firm cooperation is also a kind of intangible asset because we cannot correctly display most of the established networks and partnerships in the balance sheet due to evaluating difficulties of this asset. (Hitt et al., 2002; Carmeli and Schaubroeck, 2005; Welbourne and Pardo-del-Val, 2009) According to some authors, inter-firm cooperation may be referred to as a part of relational or network capital, which is a set of key characteristics and synergies that company acquire from resource capabilities of corporate collaborations, including business-to-business relationships, internal networks and strategic cooperation. (Hitt et al., 2002; Carmeli and Schaubroeck, 2005; Welbourne and Pardo-del-Val, 2009)

As a result, the idea that cooperation activities may potentially influence a financial result or firm's value was developed. One of the first researchers, who assumed this fact, was Michael Porter. He investigated "value chains" through which the value is generated by a vertical chain formed from resource suppliers, within firms and, then, buyers of goods and services. (Gartner and Porter, 1985) There is also a more contemporary research made by Anand and Khanna (2000) who proved that companies tend to create more value through the joint-venturing (which is one of the inter-firm cooperation types). Additionally, what is more important for us, in previous studies there were several attempts to determine the impact of firm's cooperation with other market players on its financial result. For instance, George, Zahra, and Wood (2002) showed statistically significant positive impact of the company cooperation agreements with universities, while Clement et al. (1997) identified a positive effect of alliances on firm's financial performance (revenue growth) in the sector of private medicine.

However, there is still a possibility that these relationships can have no influence on firm's performance at all or even significantly weaken a company, for example, when participants of inter-firm collaboration have to provide sufficient support, including financial help, to its partners. This argument was verified by several authors. For instance, in the already mentioned research by Clement and co-authors, they could only prove the positive impact of cooperation on the increase in net revenues, while cost control did not become more effective, as well as there was found no increase in cash flows of alliance members. Additionally, Chen et al. (2005) proved that the influence of relational capital and, hence, inter-firm relationships is small, negative, and not significant for such financial indicators as ROE and employee productivity.

Taking everything into account, we may say that even though the idea of considering inter-firm cooperation as a driver for corporate performance is not new, there is still some nonconcurrence of authors' opinion about the accuracy of such statement. This may be connected with the fact that researches studied the phenomena on various markets, countries or industries and in various time periods, used different measures of financial performance. (See Table 2) Thus, to solve this problem, in current paper we aim to simultaneously analyze several countries which differ in environments and conjunctures, offer universal and most appropriate indicator of financial data and use a longitudinal database which covers several movements of economic cycle in order to escape inaccurate conclusions.

Summary for literature review part:

We studied the literature devoted to the motives of establishing partnership agreements and what potential positive impact of cooperation is meant by each of them, namely, increase of value and driving of performance in resource-based approach, decreasing of opportunistic behavior in transaction-cost approach and stimulation of innovations in knowledge-based approach. At the same time, we identified authors who argued this advantages and found proof that the influence of cooperation may be negative. Deeper research of the cooperation impact on financial performance proved this idea that that there is still no consensus on the question about how inter-firm cooperation influences performance.

Moreover, previous research concentrated only on the analysis of this issue on local markets and authors did not make attempts to compare cooperation effects between countries and we also found that cooperation result is highly sensitive to changing conditions such as type of a partner, industry features or economy conjuncture. This shows that in spite of growing attention to the topic and the increasing relevance of inter-firm relationships for the companies, there is still not enough empirical research which evaluates the role of cooperation in company's financial performance, especially under emerging economy or crisis conditions.



2. Research design

In this part we mainly concentrate on the empirical research of inter-firm cooperation and its influence on companies' performance. In the previous section we showed that there is still an inconsistency in the results authors got while analyzing the link between financial side of company's performance and firm's participation in partnership agreements, disagreement in the choice of most suitable and universal financial performance measure as well as lack of comparative researches for various countries. So, framework of our research is supported by the aim to overcome all this difficulty.

2.1 Case-study Analysis vs Econometric Modelling

In general, there are two methods of analyzing the link between inter-firm cooperation and indicators of firm's performance. The first method is a case-study analysis, which may be characterized as a deep study of a particular firm or a small group of companies. This approach allows identifying key features of the phenomenon of interest, analyzing financial statements deeply and considering the views of representatives of studied companies, as well as the historical components of their activities. For example, case-study was a suitable method for analyzing the opportunism connected with inter-firm relationships. Authors researched forms, outcomes and solutions for opportunistic behavior using examples of particular companies, such as Xerox, Mary Kay, Taco Bell, etc. (Kenneth H Wathne and Heide, 2000) However, there are some limitations of this methodology. Firstly, it does not allow a researcher to study the phenomenon in general, as analyzing a particular company or even a small group of companies is not considered to be representative for the whole industry or country due to the big number of special and unique features of each particular organization. Secondly, this kind of research is very expensive and time-demanding. (Hadjivassiliou et al., 2011)

The alternative way is to implement econometrics in order to specify the statistical relationship that is believed to hold between indicator, like inter-firm cooperation, and other parameter, such as financial performance. This method provides researcher with the ability to analyze big amounts of data and to draw conclusions that can be transferred from the sample to general population that it why almost all of the previous studies used this methodology. Particular methods of econometric analysis used in the research of inter-firm relationships include factor analysis, multivariate analysis of covariance, principal component analysis, fixed-effects panel data model and so on. (See Table 2) Despite all the limitations of econometric techniques, which may arise from violation of the required conditions of random sample, inclusion of extra or omission of needed variables, etc., this method is implemented in this paper because of several apparent advantages, such as, for instance, low cost of database collection as information about most part of needed indicators is publicly accessible and, secondly, the wide set of analytical tools is available.

Thus, in this paper, we conduct a quantitative study of inter-firm cooperation phenomenon using an empirical database and econometric modelling techniques with a special attention to the comparison of cooperation effects on financial performance in two different regions. The reason of such idea to arise is that nowadays a cornerstone of almost all investors is the answer on question which company/country/region is the best place to put money. By conducting a simultaneous analysis of both influence of inter-firm cooperation on company's performance and differences of this impact between various countries, we will be able to approach the answer to this question. In order to make a comparative analysis more interesting and meaningful, we have chosen to study inter-firm relationships in the framework of Russian and EU market. These two regions are characterized by different economy environments as Russian market is considered to be developing, while the European Union economies are advanced. This leads to the different tendencies in companies operations, strategies and reactions on various events and factors, such as inter-firm cooperation activities which are the phenomenon of interest in current paper. To analyze whether there are any differences in these regions, we also made a comparison of the general cooperation tendencies in both Russia and EU. We found that there may be diversity in the attitude to cooperation and its intensity in these two regions which may be explained by several factors.

In Russia inter-firm cooperation may be considered as a new phenomenon. This is connected with a long history of centrally planned economy regime which was displaced by market system only in 1992. The scale and preciseness of central planning in the Soviet Union predetermined low degree of cooperation tendencies of Soviet enterprises as companies had no real information about the situation in the economy (this information is accumulated in the central economic agencies and ministries). Their experience of interactions with other enterprises was limited by conformation of production and delivery conditions; only in the rare case they could form cooperative economic ties through the five-year plans. (Malle, 2009)

Since Russian economy entered a new stage of development in the beginning of 2000, companies operating in this market have realized the importance of strategic partnerships as tools for increasing competitiveness and raising investments. (Butler, 2009) Thus, in 2012 in the framework of the "Open Innovation" forum representatives of the Russian and world high-tech industry, government agencies, key economic agencies, academics and experts in the field of innovation development signed a number of significant agreements. Examples of cooperation agreements in Russia: Kazan National Research Technological University and JSC "Aeroflot", Megaphone" and Ericsson, Huawei Technologies and holding RTI, organization of the Union of pharmaceutical and biomedical clusters. [82]

However, because of a harmful period for Russian economy in 1980-1990 years, many companies still has low level of trust in other market agents and cannot carry out joint investments and projects properly because of the lack of relevant experience. This tendency is frequently observed in the emerging economies. (Humphrey and Schmitz, 1998)

European countries, in turn, have a long history of cooperation activities. An evidence of a big variety of relationships between manufacturing companies in Germany, Great Britain and Italy was found in the early-seventies of 20 century.(Lane and Bachmann, 1996; Putnam et al., 1993) At the same time more stable conditions and easier access to the necessary resources in the developed markets may lead to the decreased willingness of European companies to arrange long-term agreements. Moreover, governments in advanced economies more actively promote fare competition and support an extensive antimonopoly policy, which often restrain companies from arranging long-term relationships.(Huggins, 2001)

Summing the aforesaid arguments, we may say that both Russia and EU are characterized by a presence of companies which participate in inter-firm cooperation as well as reasons stopping enterprises from long-term partnerships agreements, which implicates the relevance of the current study which analyses the link between collaboration and financial performance in these regions.

2.2 Hypotheses Development

After determination of the research method and substantiation of chosen research objects, namely, Russian and EU markets, we may settle down to the hypotheses development in order test the impact of cooperation agreements on firms' performance.

Firstly, we seek to test what is the impact of inter-firm cooperation on financial performance in different regions when tested on the extended time-horizon (8 years). The development of these set of hypotheses connected with the fact that previously inter-firm cooperation return on companies' performance was mostly tested on the paneled datasets. Authors analyzed cooperation effects in the advanced and developing countries using samples seizing data for 5-12 years. For example, Lahiri and Narayanan (2013) tested the hypothesis that participation in the alliance may have an inverted U-shaped impact on the Net Income indicator using USA companies' data from 1991 to 2002 year. Their study resulted in the rejection of their assumption, because empirical model showed a linear positive connection between alliance agreement and firm's performance. Jiang and Li (2008) studied cooperation of German companies in the learning activities during 2000-2005 years and proved that inter-organizational learning is beneficial for partnering firms. However, papers with the similar research design not always gave confirmation of positive relationship between inter-firm cooperation and financial performance if looking at extended time-horizon. For instance, Lavie (2007) while analyzing USA companies in 1990-2001 could prove that only in part of inter-firm collaborative coalitions (marketing and financial) there is an evidence of performance enhancement, while cooperation of human and technological assets does not affect performance. Additionally, Lee et al. (2013) showed that horizontal alliances seem to have negative effect on the increment of firm value in Korea during 2001-2007.

As for the current research, we expect that for both Russian and EU firms, collaboration had positive effect on companies' finances if analyze it during an extended time-horizon of 8 years. It may be explained by the fact that according to the literature review cooperation has more advantages that disadvantages, including enhanced resource base, decreased transaction costs and growth in knowledge assets through the combination of individual actions into collaborative activities. (Tushar K. Das and Teng, 2000; Grant and Baden-Fuller, 2004; Oxley, 2009) We expect that in 8-years period these factors prevail over other possible negative events connected with influence of cooperation on company's finances, such as danger of company's development moderation and growth of financial or operational risks.

Hypothesis 1a. Inter-firm cooperation is a driver for a company's performance in EU during an 8-year period.

Hypothesis 1b. Inter-firm cooperation is a driver for a company's performance in Russia during an 8-year period.

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Figure 1 Hypothesized influence of time-period on the link between cooperation and performance

At the same time, we expect that dividing panel data on the periods, according to the stage of economic cycle may vary the impact of cooperation on performance in EU and Russia.

Previous research did not make any attempts to concatenate the analysis of inter-firm cooperation consequences depending on the stage of the economy cycle, but there is a number of studies which based their empirical tests not on the longitudinal panel dataset, but on the data covering shorter periods of time, or even one year (See Table 2).

So, we developed the second set of hypotheses.

We assume that for EU which is represented by countries with advanced economies, the highest effect of cooperation on company's performance is observed in the crisis times compared to the growth and the recovery period.

This is connected with the fact that in developed countries companies are more predisposed to get the most essential advantage from shared resources and assets in the hardest times, which reflects the general practice of more effective crisis management in advanced economies.

Hypothesis 2a Cooperation in the crisis period has highest impact on firms' performance comparing to growth and recovery period for EU companies.

We consider that in developing country, in turn, growth period of the economy is characterized by more intensive influence of cooperative activities on financial performance than in crisis times.

This is connected with the specific position of companies operating under conditions of developing country.

It is considered that such companies are also in the process of permanent extension and they make less risky strategic decisions than firms in advanced economies. (Tarun Khanna and Krishna G. Palepu, 2006) So, we assume that in crisis times such companies will level down the joint activities in the sphere of their partnership agreements, for example, only to marketing operations rather than cooperative production arrangements.

As a result, it is expected that the impact of inter-firm agreements on financial performance remains positive in crisis times, but decreases in the comparison with growth stage.

We also expect that in the developing country inter-firm cooperation may influence company's performance negatively during the recovery period. This assumption is connected with the fact that during and after a general downturn Russian companies are likely to implement such measures as selling out of assets, redundancy and chaotic curtailment of expenses policy rather than strategic crisis management decisions. (Malle, 2009) These steps, in turn, may lead to the even greater loss of market position and overall efficiency of an enterprise. (Marinic, 2013) So, if one of the company's long-term partners realizes such policy, it may harm financial performance of all firms in the cooperation because of the tight interdependence of operations. However, these statements need additional empirical testing as previously there were no attempts to associate Russian-style crisis management and its influence on companies if they participate in inter-firm relationships.

Hypothesis 2b. In Russia influence of cooperation on companies' financial indicators is higher in growth period than in crisis period

Hypothess 2c. Cooperation in the growth and crisis period has positive impact while in recovery times it influences negatively firms' performance for Russian companies.

Table 2

Review of empirical research devoted to the analysis of links between cooperation and performance

Author, year	Type	Source	Hypotheses	Sample	Method	Dependent Var	Results
Lavie, 2007	Alliance	SDC Platinum Thomson	The focal firm's market performance will be positively associated with the network resources possessed by partners in its alliance portfolio.	1990-2001	USA	Fixed effects panel data model	return on sales; Q-Tobin.	Cooperation in marketing and financial resources possessed by individual firms increases partners' performance
								Human and technological resources partnerships does not enhance performance.
Lahiri and Narayanan, 2013	Alliance	SDC Platinum Thomson	Alliance portfolio has an inverted U-shaped impact on financial performance.	1991-2002	USA	Panel data regression	Net income	Alliances has a linear positive connection with firm's performance
Lee et al., 2013	Strategic Alliance	Korea Investor's Network for Disclosure (KIND)	Announcement of partnership agreement influences positively firm's value in developing countries	2001-2007	Korea	OLS, GARCH	Abnormal returns (stock market)	Alliances in marketing sphere has positive effect on firm's value, while horizontal alliances have negative effect on the increment of firm value
Jiang and Li, 2008	Strategic alliance, joint ventures	Self-made survey (questionnaire)	Inter-organizational relationships in cooperative learning will be positively related to partner firms' financial performance.	2000-2005	Germany	Factor analysis	sales, profitability, ROA, ROI	The idea that inter-organizational learning is beneficial to the partnering firms was proved
Clarke et al., 2011	Buyer and Supplyer Networks	Self-made survey (questionnaire)	Networks with suppliers and buyers are positively related to firm performance.	2006-2008	Australia	ANOVA, OLS	ROA, ROE	A significant effect of partnerships with buyers and suppliers was found
Kongmanila and Takahashi, 2009	Cluster	Self-made survey (questionnaire)	Horizontal cooperation with other garment manufacturing firms is positively significant related to performance	2007	Lao	Principal Component Analysis	output, net profit, productivity	There is no significant impact of cooperation on Lao companies' performance during 2007
Sheresheva and Peresvetov, 2012	Informal cooperation	Self-made survey (questionnaire)	networking helps Russian SMEs to survive in unstable environment	2008, 2010	Russia	Comparative Analysis (Statistics)	_	Russian firms independently operating had less stable position in 2010 compared to 2008 than companies-members of relationships.
Flynn et al., 2010	Supply chain	Self-made survey (questionnaire)	Customer and supplier integration are positively related to the operational and business performance of the manufacturer within a supply chain	2010	China	Hierarchical regression analysis	service, delivery, product development	They found significant and positive relationship only between customer integration and operational performance
							sales, ROI, Profit, Market share	The assumption that supplier and customer integration influences business performance was not supported

3. Methodology

In this part we will describe an empirical database and discuss econometric method which was picked as a relevant econometric technique for hypotheses verification.

3.1 Analytical Model

Regression coefficients for the whole dataset and three separate panels (for growth, crisis and recovery periods) will be estimated using the Hausman-Taylor method. This decision was caused by the specificity of the database that is supposed to be longitudinal because of hypotheses framework, and indicators' set, which includes a number of endogenous parameters and several time-invariant regressors as well as time-variant ones.

In general, fixed effects and random effects models can be used for the analysis of panel data. In the case of a fixed effect model (Equation 1), a problem of biased and inconsistent estimates, which arises in the method of least squares or generalized OLS, is solved. However, fixed effects model has several disadvantages including that because of the time averaging all time invariant variables (z) will be excluded from the model and, hence, it becomes impossible to estimate their impact.

where; - the dependent variable; - the intercept; - vector of time variant characteristics, -vector of time invariant characteristics, -an idiosyncratic error term; -individual-specific effect.

Alternatively, there is an option to build a random effects model for panel dataset. In this case, the individual-specific error term is considered to be a random variable that is uncorrelated with explanatory variables of all periods of the same observation. Nevertheless, it also has some drawbacks, as using random effects model leads to the fact that coefficients' estimates of regression coefficients will not be fully effective as the heterogeneity of the sample is ignored due to the elimination of some variables. (Wooldridge, 2012)

The heterogeneity of observations pool, in turn, leads to the presence of endogeneity in the models as observations are quite individual and there are indicators which values are conditioned by special features of each unit. In general case, the problem of endogenous regressors arises when the regressor "is correlated with the error term. If any one regressor is endogenous then, in general, OLS estimates of all regression parameters are inconsistent" and there is a need to use alternative specifications. (Cameron, 2005) One of such alternatives is the approach according to which instrumental variables that do not correlate with a specific individual effect and are not included in the model, although closely related to the explanatory variables included in model, was developed. Nevertheless, these tools may be difficult to find and this procedure ignores time-varying characteristics of the hidden variables. Moreover, this method is highly sensitive to a priori information on the nature of the unobserved specific effects.

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