Do Strategic Alliances and Joint Ventures Create Value for Bondholders and Shareholders?

Abstract

This paper investigates whether joint ventures and strategy alliances create value for bondholders and stockholders by examining the wealth effects around the announcements of alliance events. Based on 3,243 alliance announcements from 1984 to 2011, we find that alliances create value for bondholders and stockholders. In a 2-month window, the mean abnormal return is 0.67% for bondholders and 1.06% for stockholders. We explore various explanations for the wealth effects. Joint ventures create value to bondholders through financial synergy and to shareholders through operating synergy. In addition, alleviation of financial constraints hypothesis holds for shareholder reaction, but does not help explain bondholder wealth effect. Moreover, uncertainty about profitability in the alliance industry has a positive and significant effect on bondholder and stockholder value. For strategic alliances, both financial and operating synergy effects contribute to bondholder wealth. Uncertainty about product market is significant for shareholder wealth. Finally, horizontal or domestic collaboration in strategic alliances generates larger stock returns, while equal ownership in joint ventures leads to lower bondholder and stockholder returns.