Managing knowledge leakage in strategic alliances: The effects of trust and formal contracts

•Knowledge leakage is a second-order construct that comprises distinct but related dimensions.•Moderate goodwill trust is effective in curbing knowledge leakage.•Competence trust is an effective mechanism in protecting private knowledge.•Goodwill trust and competence trust interact with formal contracts in distinctive ways to influence knowledge leakage.

Although strategic alliances offer opportunities for knowledge sharing and leveraging, they also carry the risk of knowledge leakage to partner firms. In this study, we conceptualize the notion of knowledge leakage as a multidimensional construct and formalize its measurement. We examine the effects of two dominant governance mechanisms—trust (goodwill trust and competence trust) and formal contracts on knowledge leakage. A survey of 205 partnering firms in China indicates that goodwill trust has a U-shaped relationship with knowledge leakage, whereas competence trust has a negative impact. Moreover, goodwill trust and competence trust interact differently with formal contracts on knowledge leakage. This study offers important theoretical and managerial insights for firms to manage knowledge leakage in strategic alliances.