The Effect of Inter-partner Relatedness On Stock Market Reactions To Joint Venture Announcements: Differences Between Manufacturing and Marketing Deals (original) (raw)

Market Value Impact of Joint Ventures: The Effect of Industry Information-Processing Load

Academy of Management Journal, 1995

Previous studies of the market value impact of announcements of joint ventures have not considered industry effects. We suggest that the impact of such announcements varies with the inform at ion-processing load associated with analyzing events in lhe relevant industrj'. An event study analysis hased on a stratified sample of 108 announcements in three industry groups, one with a light, one with a moderate. and one with a heavy information-processing load, ronfirmed this hypothesis. We examine implications for a signaling perspective on joint venture announcements.

Market valuation of joint ventures: Joint venture characteristics and wealth gains

Journal of Business Venturing, 1997

Along with R&D and capital investment, interfirm linkages like joint yen-EXECUTIVE tures have been widely used by American corporations as an investment tool SUMMARY to enhance their entrepreneurial capabilities and long-run competitiveness. Today, it has become a common belief that cooperative strategy is the new form of competition facing the recent development in the world economy, technology, and corporate strategy, Companies use interfirm coordination to acquire new technologies and expand their product/market reach, which is the crux of corporate entrepreneurship, lnterfirm linkages expand information and resource access by widening the sweep of environmental scanning for a firm and by linking with complementary assets in other corporations. And corporate entrepreneurialism through the pursuit of innovative capabilities or administrative structures is at the nexus of joint venturing among domestic or cross-border partners. Studies have consistently shown that the payoff of corporate entrepreneurship like joint ventures is long-term in nature. However, it is well known that for American managers, the biggest obstacle to long-run or entrepreneurial decision-making is the stock market. The business press and writers have claimed that the stock market forces managers to take a short-run view in their decision-making and deters corporate entrepreneurship. However, this claim is still not solidly grounded in empirical findings. The present study attempted to provide such evidence by examining wealth gains, i.e., stock market valuation, from corporate entrepreneurship of joint venturing between independent companies. Investors have an incentive to gather information and judge whether entrepreneurial decisions are good or bad in max

Firm Partnerships and Alliances: The Impact of Partnering Relationships on Operating Risk and Financial Performance

SSRN Electronic Journal, 2000

In this paper, we investigate the impact of both alliances and major customer relationships on operating risk, operating performance, and market returns. We examine the performance of 291 high-tech manufacturing firms that reported major customer relationships in accordance with FAS 14 (superseded by FAS 131 in 1997) and a subset of 128 firms that were also engaged in major alliance activity (research or marketing) over the period 1990 to 2002. Although managers suggest that major reasons to enter into partnerships or alliances are to reduce operating risk and increase performance, our paper is the first (to our knowledge) to examine directly this conjecture. Using a control group experimental design, we examine the performance impact of partnering relationships, and we find that impact often to be opposite managers' expectations. We employ several proxies for operating risk and find that risk generally increased during major customer relationships and research alliances. Operating performance decreases during research alliances as well as after major customer relationships. Finally, we find that the market penalizes firms that discontinue major customer relationship but rewards firms participating in research alliances.

Information Asymmetry, Market Failure and Joint Ventures : Theory and Evidence

1993

We propose that joint-ventures are superior to markets and hierarchies as means of pooling complemetary assets when the costs of valuing these assets are non-trivial. By allowing piecemeal transactions under shared ownership and control. joint-ventures could reduce these costs significantly. Our theory is supported by the results of a cross- sectional analysis of the abnormal returns to the parent firms in 64 joint-venture announcements. 2 In recent years there has been a significant increase in the incidence of various forms of strategic alliances between firms. 1 Joint- venture has been an important form of such alliances. Between 1966 and 1979. more than 2400 joint-ventures were regis-tered with the Federal Trade Commission. Nearly 2000 joint-ventures were reported in the quarterly roster of joint-ventures published by the Mergers & Acquisitions be-tween 1972 and 1983. More than a fourth of these were between U.S. companies. These numbers are indicative the growing importance of ...

Risk and wealth effects of U.S. firm joint venture activity

Review of Financial Economics, 2006

Using a sample of US firms engaged in joint venture activity primarily in the 1990s, we test the hypothesis that joint venture activity is motivated by a desire for efficient risk sharing. We find that approximately ninety-six percent of our sample experiences a risk change in response to joint venture activity. A significant proportion of these experience a reduction in

How do international joint ventures create shareholder value?

Strategic Management Journal, 2000

This study attempts to identify conditions under which announcements of international joint venture (JV) formation lead to increases in shareholder value of participating U.S. firms. It does so by combining the singular theoretical foci of previous work on the topic and specifying previously unconsidered, but conceptually important, influences on firms' expected JV performance. The study's findings indicate support for the hypothesized effect of variables in partners' task-related, competitive, and structural context(s), but not those in these firms' partner-related and institutional context(s). Specifically, partner-venture business relatedness, the pursuit of R&D-oriented activity, greater equity ownership, and large firm size, all are found to have a positive impact on firms' JV-based value creation. Although this study finds support for the performance impact of firm-level competition, the direction of this impact is contrary to that hypothesized. No support is found for hypothesized effect of partner-partner business relatedness, previous JV experience, partners' relative firm size, (national) cultural relatedness, and JV host country political risk.

The Choice between Joint Ventures and Acquisitions: Insights from Signaling Theory

2012

This paper extends information economics in corporate strategy and organizational governance research by using signaling theory to explain firms' market entry modes. We exploit features of the IPO context to investigate how signals on newly-public firms shape other companies' governance choices to form joint ventures with them versus acquire them. We also develop theoretical arguments on how the value of these signals will vary across exchange partners. The results reveal that companies are more apt to acquire versus partner with IPO firms taken public by reputable investment banks, compared to IPO firms associated with less prominent underwriters. Venture capitalist backing also appears to be a valuable signal for prospective acquirers, particularly when the acquirer and target reside in different industries and possess dissimilar knowledge bases. We also present evidence that signals affect target selection and the emergence of market segmentation for joint venture partners and acquisition candidates.

Information asymmetry, adverse selection and joint-ventures

Journal of Economic Behavior & Organization, 1993

We propose that intermediate forms of organization like joint-ventures are superior to markets and hierarchies when the costs of valuing complementary assets are non-trivial. By allowing piecemeal transactions under shared ownership and control, joint-ventures can reduce these costs significantly. Our theory is supported by the results of a cross-sectional analysis of the abnormal returns to the parent firms in 64 joint-venture announcements and 165 merger announcements. A joint venture is a special mechanism for pooling complementary assets owned by separate firms.' In most joint ventures the parent firms combine part or all of their assets into a legally separate unit and agree to share the profits from the venture. Like the more typical common stock company, this unit is usually free to raise additional capital, enter into contracts, buy and sell goods and sevices, hire employees, and the like. In matters of policy making and control, however, the joint venture is more like a partnership.

Are joint ventures positive sum games? The relative effects of cooperative and noncooperative behavior

Strategic Management Journal, 2011

Are joint ventures (JVs) characterized mainly by cooperative behavior or noncooperative behavior? In this research, we address this question by examining the interrelationship between the values created for two partners when they announce a JV. We argue that, on average, if cooperative behavior and common benefits are more influential than noncooperative behavior and private benefits, there will be a positive association between the values created for the two partners. Conversely, if private benefits and noncooperative behavior are more influential, there will be a negative association as partners derive value at the expense of each other rather than by creating new opportunities through the JV. Using a sample of 344 JVs we find evidence of a positive association between the values created for the two partners after controlling for various factors. This suggests that the stock market perceives JVs to be positive sum games rather than zero sum games, and that value creation in JVs is mainly attributable to synergies rather than appropriation of resources. Our analysis also reveals other conditions under which cooperative behavior and noncooperative behavior become dominant, such as the strength of the resources of the two partners, product market competition, and JV experience.