The wealth effects of non-equity alliances The U.S.-Japanese licensing experience

Abstract

Most licensing agreements in our sample transfer technology into, rather than away from, Japan. Japanese licensees frequently belong to keiretsus and are larger but less research intensive than U.S. licensors. If bargaining power relates positively to keiretsu membership or firm size, such alliances could transfer wealth from US to Japanese firms. However, mean abnormal returns of U.S. licensors are larger than mean abnormal returns of Japanese licensees. Thus, wealth transfers are not the primary determinants of stock price responses to the U.S.-Japanese licensing agreements we study. Instead, cross-sectional tests show that US licensors benefit from their own research intensity and from maintaining an equity buffer that provides financial flexibility.