Stock market reactions to international joint venture announcement: an event analysis

Abstract

Making an announcement is the first activity firms may carry out once a decision to form a joint venture is made. Previous research suggests that announcements of domestic joint ventures and other types of strategic alliance could elicit positive stock market reactions, and thus create positive abnormal returns to shareholders. This study examines shareholder value creation in the context of international joint venture by investigating stock market reactions to the announcements of international joint venture formations made over 14 years (1985–98). The study aims to demonstrate that the event analysis methodology, using the publicly available information easily obtained in this information age, can provide insights into a shareholder's evaluation of a firm's strategic decision. The results show that announcements containing information about the international joint venture formations are associated with positive market reactions and, interestingly, these positive effects are also evident a few days prior to the announcement. The findings thus emphasize the role of information technology and electronic news that signify the importance of an informationally-efficient market. Future research implications are also offered.