Alliance Announcements Research Articles

Insider trading and the valuation of international strategic alliances in emerging stock markets

Because stock markets in emerging economies are relatively new, under-regulated, and often segmented, investors' responses to public announcements by firms in these economies may differ from responses in developed economies' stock markets. We draw on the institutional and corporate governance literatures to explain investor reactions to announcements of international strategic alliances (ISAs) between foreign and emerging-market firms. We argue that emerging economies' stock markets positively value ISAs; however, information leakages due to weak regulatory environments siphon off the “good news” before the ISA announcement date. The level of state ownership of publicly traded firms and the nationality of foreign partners both affect the size and timing of market reactions.

Interorganizational information sharing in the airline industry: An analysis of stock market responses to code-sharing agreements

This paper addresses the issue of inter-organizational information sharing alliances and their impacts on firm values from the perspective of inter-organizational coordination between partners in the airline industry setting. We investigate the shareholder wealth effects of inter-organizational information-sharing alliance arrangements, using 131 code-sharing agreements in the airline industry during 1984---1997. Employing event study methodology we found that the information sharing alliances between similar partners did create positive value in terms of stock returns at the time of alliance announcements to major US airlines. However, alliances between dissimilar partners resulted in significant losses of shareholder value to the major airlines. These results strongly support our main hypotheses that information-sharing alliances are successful and the benefits of such alliances are realized only when the coordination difficulties can be effectively dealt with.

Asymmetric New Product Development Alliances: Win-Win or Win-Lose Partnerships?

Interorganizational alliances are widely recognized as critical to product innovation, particularly in high-technology markets. Many new product development (NPD) alliances tend to be asymmetric, that is, they are formed between a larger firm and a smaller firm. As is the case with alliances in general, asymmetric alliances also typically result in changes in the shareholder values of the partner firms. Are the changes in shareholder values of the partner firms significant? Are asymmetric NPD alliances win-win or win-lose partnerships? Are the gains or losses symmetric for the larger and smaller partner firms? What factors drive the changes in shareholder values of the partner firms? These important questions remain largely unexplored as evidenced by the dearth of empirical research on the effect of asymmetric NPD alliances on shareholder value and on the apportionment of this value between the partner firms. We develop and empirically test a model of short-term changes in shareholder values of larger and smaller firms involved in NPD alliances, using the event study methodology on data covering 167 asymmetric alliances in the information technology and communication industries. In this model, we examine alliance, firm, and partner characteristics as potential determinants of the changes in shareholder values of the partner firms due to an NPD alliance announcement. Our model accounts for selection correction, potential cross-correlation across the residuals from the models of firm value changes for the larger and smaller firms, and unobserved heterogeneity. The results suggest that both the partners experience significant short-term financial gains, but there are considerable asymmetries between the larger and smaller firms with regard to the effects of alliance, partner, and firm characteristics on the gains of the partner firms. The results relating to alliance characteristics suggest that while a broad scope alliance enhances the financial gains for the larger firm, a scale R&D alliance (relative to a link alliance) contributes positively to the financial gains for the smaller firm. With regard to partner characteristics, while partner alliance experience positively influences the financial gains for the larger firm, it has no significant effect on the financial returns for the smaller firm. Further, partner innovativeness is positively associated with the financial gains for the larger firm, but partner reputation is unrelated to the financial gains of the smaller firm. Regarding firm characteristics, the magnitude of the financial gains accruing from a firm’s own alliance experience is considerably higher for the smaller firm than it is for the larger firm. We outline the implications of the research findings for future research and management practice.

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

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.

The market impact of corporate alliance announcements: value-weighted versus equally weighted portfolio returns

Several recent studies document significant share returns at the time when strategic alliances are announced to the stock market. However, the earlier evidence is focused on equally weighted portfolio returns and/or individual partner returns. A value-weighted portfolio approach is used here to demonstrate that the overall market impact of alliance disclosures is limited, reflecting the fact that the large returns tend to be concentrated in the smaller partner.

The impact of M&A and joint ventures on the value of IT and non-IT firms

This paper aims to study and provide empirical evidence on the impact of mergers and acquisitions (M&A) and joint ventures on the value of IT and non-IT firms. Using the event study methodology, we investigate the effect of such strategic alliance announcements on firm value in a sample of 170 firms. The results show that such strategic alliance announcements create significant gains in firm value. When the sample is divided into IT and non-IT firms, we find stronger support for positive impact on gains in firm value among non-IT firms than among IT firms. We also find that the smaller strategic alliance partners perform better than their larger partners. However, we fail to find any significant difference in impact on firm value between merger/acquisition and joint venture announcements.

Technology and Marketing Alliances, 1996-2003

In the U.S., companies entered into more than 67,000 strategic alliances in the 1996-2003 time period. We investigate the impact of the announcement of alliances by U.S. firms using the Fama-French model. We find firms engaging in technology alliances are likely to be smaller in size and have better price-to-book ratios than firms engaging in marketing alliances. Prior studies find announcement period abnormal stock returns to be positive. Our study, in contrast, finds that technology as well as marketing alliances on average have stock price reaction not significantly different from zero. We find, on average, the market considers the announcement of an alliance by a firm - irrespective of whether it is technology or marketing alliance - as a negative signal about its internal growth options. Despite these similarities for the Technological and Marketing alliances, the determinants of abnormal returns convey a different picture for the two groups during our study period. Cross-sectional findings suggest that the first movers in technology alliances are more likely to experience exploitative hold-up behavior by their partners and that the financial viability of the partners is more important than in marketing alliances. In marketing alliances, the stock market favors those in which the partners are from the same industry, while it shows no such concern in technology alliances. Finally, we find that while alliances do not involve just transfer of wealth from one partner to the other, the bigger partner exhibits better bargaining power against the smaller partner in technology alliances than in marketing alliances.

Trading Strategies Based on Analyst Estimate Revision Clusters and Associated Corporate Information Events

This paper examines trading strategies based on clusters of analysts9 earnings estimate revisions and their triggering corporate information events (CIEs). We find that the profitability of long and short positions depends on the nature of triggering event as well as the sign of price movements at the beginning of the cluster. Long positions based on revision clusters associated with earnings and stand-alone guidance CIEs result in meaningful average excess returns. Short positions based on revision clusters associated with earnings result in small but statistically significant excess returns. Short positions in revision clusters associated with stand-alone guidance and positions in clusters associated with other types of corporate information events (e.g., corporate presentations, IPO filings, M&amp;A, and other joint venture or strategic alliance announcements) generally do not yield positive excess returns. This indicates that there is value to matching revision clusters and triggering events when developing trading strategies based on revision clusters. <b>TOPICS:</b>In markets, big data/machine learning

Alliance patterns during industry life cycle emergence: the case of Ericsson and Nokia

Industry Life Cycles (ILCs) have been proposed as a means of analyzing the processes of company entry and exit in competitive industries. This paper utilizes ILC approaches to better understand the changing rationales for alliance formation for two large multination electronics firms, Nokia and Ericsson. Through the use of alliance announcements by the firms, we find that the rationale for alliance formation changes over the industry life cycle in response to changing organizational needs and industry imperatives. We also find that the rapid emergence of standards-based alliances has been a strategic response by firms and industries to the growing complexity of information and communication technology systems and the costs involved in ignoring the scale economies that standards-based alliances deliver.

Information Sharing Alliances in the Airline Industry: An Examination of Code Sharing Agreements

This paper addresses the issue of inter-organizational information-sharing alliances and their impacts on firm values from the perspective of inter-organizational coordination between partners in the airline industry setting. We investigate the shareholder wealth effects of inter-organizational information-sharing alliance arrangements, using 131 cede sharing agrc.unems in the airline industry betwcm 1984-1997. Employing event study methodology, we find that the information-sharing alliances between similar partners did create positive value in terms of stock returns at the time of alliance announcements to major US airlines. However, alliances between dissimilar partners resulted in significant losses of shareholder value to the major airlines. These results strongly support our main hypotheses, that information- sharing alliances arc successful and the benefits of such alliances are realized only when coordination difficulties can be effectively dealt with.

Concurrent capital expenditure and the stock market reaction to corporate alliance announcements

This paper examines the effect of concurrent capital expenditure on the market reaction to corporate alliance announcements. Based on a large sample of announcements made in the UK between 1993 and 1995, the evidence suggests that the market response is most favourable when new investment does not form part of the joint activity. The results also suggest that the decision to formalize the partnerships through the establishment of a joint venture impacts negatively on announcement period share returns. The findings are shown to be consistent with a scenario whereby the market response reflects concern about the dangers of overly-committed partnerships.

The Effects of High-Tech Companies' Strategic Alliance Announcements on the Stock Prices of the Relevant Companies: A Comparative Analysis of Indirect Benefits for Taiwan's High-Tech Industry Versus Other Industries 1998–2002

In recent years, the formation of strategic alliances has become an increasingly common trend among developing countries around the world. In spite of this, the numerous attempts to comprehensively review the research on the correlation between these strategic alliances and stock prices over the years have, by and large, limited their discussion to how the stock price of a corporation responds to its announcement that it is forming a strategic alliance. Only a few studies have, however, discussed the announcement's indirect impact on the stock prices of investing companies that have entered into such strategic alliances. It is for this reason that we conduct an event study and develop an empirical model to measure that indirect impact on the stock prices of investing companies engaging in strategic alliances with Taiwan's high-tech industry from 1998 to 2002, while also discussing the market's different responses in their stock prices according to various industrial types that have been used to classify these investing companies.

Measuring the value of strategic alliances in the wake of a financial implosion: Evidence from Japan’s financial services sector

This paper examines the wealth effects of financial-institution strategic alliances on the shareholders of the newly allied firms. Our paper is different from most previous studies, in that we focus on financial institutions, we employ Japanese data for the late 1990s, and we study whether different types of alliances result in differing magnitudes of stock market responses.We find that a strategic alliance, on average, increases the value of the partner firms. Second, the gains from the alliance are spread more widely among the partners than would be suggested by a random alternative. Third, smaller partners tend to experience larger percentage gains. Fourth, the market values inter-group alliance announcements more than intra-group alliance announcements. Fifth, we do not find a significant difference in the abnormal returns shown by domestic–foreign alliances and domestic–domestic alliances.

Before and after the technology sector crash: the effect of environmental munificence on stock market response to alliances of e-commerce firms

We treat the sudden technology sector crash as a natural experiment to investigate how dramatic changes in resource availability in the e-commerce sector affect stock market response to interfirm alliances. This environmental jolt demarcated two distinctly different periods of e-commerce resource munificence: pre-crash, characterized by high munificence, and post-crash, characterized by low munificence. Using data on alliances involving 75 e-commerce firms from 1995 to 2001, we find that the stock market responds more favorably to alliances during the less munificent period. Further, stock market response to alliance partner and type is also affected by the change in environmental munificence between the two periods. Our findings demonstrate the importance of environmental conditions and how these affect stock market interpretation of signals inherent in alliance announcements. Copyright © 2005 John Wiley & Sons, Ltd.

The impact of strategic alliances on shareholder wealth: the role of growth opportunity

The main purpose of this study is to examine the impact of strategic alliances on shareholder wealth while also considering the role of firm growth opportunity. By focusing on Taiwan Stock Exchange-listed firms that announced the formation of such alliances from 1996 to 2000, a sample of 140 firms is obtained using event study. The empirical results indicate that the effect of strategic alliance announcements on shareholder wealth is significantly negative for high-growth firms; while high-growth firms forming intra-industry alliances or partner with foreign companies have better announcement effects. For low-growth firms, inter-industry alliances and partnerships with domestic firms have better announcement effects. The findings also indicate that nonequity alliances are appropriate for high-growth firms, while more value accrues to low-growth firms where alliances with equity are involved. Finally, in the case of R&D alliances, the effect of the alliance announcement on shareholder wealth for high-growth firms is superior to that of low-growth firms.

The source of abnormal returns from strategic alliance announcements

This study links together theoretical models of strategic alliances with an empirical examination of stock returns on the announcement of strategic alliances. Using a sample of 123 strategic alliance announcements, the results find strong support for the hypothesis that strategic alliance announcements generate significant positive abnormal returns on the announcement day. Although strategic alliances are more prevalent in the higher technology industries, the source of the abnormal stock returns is a subsample of firms with the lowest market to book values. This is found to be supportive of the hypothesis that the announcement of a strategic alliance is additional information for firms with low growth. There is no empirical support for the knowledge, flexibility and the hubris hypotheses.

Technological alliances and the market valuation of new economy firms

The article investigates a sample of 69 announcements of technological alliances involving new economy firms in Spain, over the five-year period from 1997 to 2002. The purpose of the study is to analyse the impact of these announcements on share prices and volatility in these firms. Various alliance characteristics are also examined in order to analyse their influence on stock market prices. Our findings suggest that, while there is no overall reaction of share prices to the announcement of technological alliances, there is an increase in volatility during the event window. Nevertheless, the analysis enables us to conclude that the market valuation is more positive for joint ventures and cross-border, cross-sectoral, and two-partner alliances. The observed effect on volatility indicates that the announcement of the formalisation of these alliances constitutes an abnormal amount of information, with a potentially significant effect on the variability of share prices.

The Share Price Responses and Determinants of Strategic Alliances in Taiwan's High-Tech Industry: A Quantile Regression Approach

This article investigates share price responses to strategic alliances in Taiwan's high-tech industry from 1996 to 1999. We analyze the determinants of abnormal returns caused by strategic alliances using a quantile regression estimation procedure. Our empirical findings show that the wealth effect for a strategic alliance is positive, with no evidence of a wealth transfer between alliance partners. In addition, intra-industry alliances show significantly higher abnormal returns than inter-industry alliances. The horizontal and vertical alliances both have significantly positive abnormal returns, but the positive effect of vertical alliances primarily comes from downstream buyers. On the other hand, results from a quantile regression model show that the P/B ratio, director and supervisor shareholding ratios, and R&amp;D ratio are important determinants of abnormal returns of strategic alliance announcements. Our empirical findings are consistent with the argument that the organizational flexibility offered by alliances is valuable to the high-tech industry which needs to cope with a fast-changing environment.

Who Gets Wall Street’s Attention? How Alliance Announcements and Alliance Density Affect Analyst Coverage

This study integrates research on strategic alliances and security analysts by focusing on the extent to which alliance announcements affect the amount of coverage firms obtain from security analysts. Adopting the perspective that alliance announcements constitute important market signals, I argue that they increase analyst coverage at a decreasing rate, but also that the strength of the relationship between announcements and coverage depends on the density of alliances. The relationship is strongest when alliance density is low because more attractive alliance partners are available, or when alliance density is high because more attractive resources are available in the alliance network. I find support for these arguments in the empirical context of alliance announcements among computer technology firms and discuss their consequences for research on alliance-based market signals.

Volatility-based Effects on Shareholder Value: Alliance Activity in the Computing Industry

We use an event-study analysis to understand how alliance activity affects firm risk. The risk measure is the implied volatility of a firm’s stock price and the events are alliance announcements to the market. We build on the previous event-studies in the alliance literature that focus on the change in shareholder value by taking the first step in delineating what part of that value arises from the changes in the firm’s risk. The analysis reveals that a number of factors within a firm’s control can be used to manipulate risk exposure in an alliance, including the similarity of the firm’s and the alliance’s core activities, the governance form of the alliance, and the function of the alliance.