Spillovers of Cross-Border Strategic Alliances on Rivals’ Values in Emerging Economies

Abstract

While there are many studies on the impact of cross-border strategic alliances (SAs) on market values of focal firms, studies on the impacts of cross-border SAs on market values of local rivals in foreign countries are limited. We start filling this gap by examining how local rivals’ stock prices respond to SA announcements between US firms and foreign partners in emerging economies. We employ signaling theory and test our hypotheses by using event study analysis of cross-border SAs between US firms and foreign partners in China, India, and South Korea in the pharmaceutical industry during 2004-2013. Our findings show that the higher the institutional distances between alliance partners are, the greater the positive spillovers on local rivals’ value would be. We also find that R&D alliances generate more positive spillovers than marketing alliances do. However, the results reveal that the positive spillovers of cross-border SAs between partners with high institutional distances are attenuated with R&D alliances. This study provides insights on how institutional contexts play an important role on the spillovers of cross-border SAs in emerging economies.