Interorganizational Diversity and the Formation of Partnerships in Lending Syndicates

We examine how interorganizational diversity measured across all the organizations participating in a multipartner alliance affects the formation of the multipartner banking syndicates that come together to finance the world's largest infrastructure projects. Previous studies have argued that interorganizational diversity negatively affects the formation of alliances because diversity increases the costs of coordination and the probability of conflict among the partners. We extend this research and argue that the negative relationship between interorganizational diversity and alliance formation is moderated by the institutional content in the country where the infrastructure project is built. Diverse syndicates allow partners to pool resources and knowledge that can be useful in managing local institutional risks. We compare 1,110 realized multipartner syndicates with 26,552 randomly generated unrealized syndicates to provide evidence that more diverse alliances are likely to form when the project is located in a high-risk institutional context than when the project is located in a low-risk country.