The Market Impact of Strategic Alliance Announcements in the European Telecommunication Industry

Abstract

Purpose: This paper analyzes the impact of 130 strategic alliance announcements involving European telecommunications firms on capital markets over the period 2003-2005. Methodology/Approach: We use the event study methodology. We define the event as the public announcement of an alliance initiative by a firm in the media. Specifically, the data was collected from alliance-related news items posted in the Press Release pages in corporate websites. Findings: Our findings indicate that investors appreciate the importance of alliance initiatives by European telecommunications firms, and this is reflected in their effect on the volatility of share prices surrounding announcement date. In view of the null effect of alliances on returns, however, it would seem that the expectations generated in the market are mixed. Comparison of our results with the evidence for the US market reveals a smaller reaction in European markets which could be explained by both differences in the legislative, economic and social environment and the specific features of the firms operating in the two markets. Research limitations/implications: It would be interesting establish whether the market effect of alliances changes if the differing characteristics of the firms involved are taken into account, or if alliances are more tightly defined (international or national, number of partners ). Moreover, further comparative studies between high- and low-tech sectors are needed. Originality/value of paper: The view of the capital markets is of particular interest to the telecommunications industry, because firms rely heavily on them for funding. Understanding how the capital markets view and value alliances is therefore critical to strategic management and communication. Moreover, this study extends previous research in the telecommunications industry by examining European firms.