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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26176
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| Title: | Measuring the Value of Strategic Alliances in the Wake of a Financial
Implosion: Evidence from Japan's Financial Services Sector |
| Authors: | White, Lawrence
Chiou, Ingyu |
| Issue Date: | 8-Oct-2003 |
| Series/Report no.: | EC-03-23 |
| Abstract: | This paper examines the wealth effects of financial-institution
strategic alliances on the shareholders of the newly allied firms. Our
paper is different from previous studies of non-financial joint
ventures, financial and non-financial mergers and acquisitions, and
non-financial strategic alliances in three important aspects/ways:
First, we focus on financial institutions that form strategic alliances.
Second, while most related studies use U.S. data, this paper employs
Japanese data for the late 1990s, directly testing financial theory in a
different setting. Finally, we study whether different types of
alliances result in differing magnitudes of stock market responses. Our
primary results are as follows: First, we find that a strategic
alliance, on average, increases the value of the partner firms. This is
consistent with the “synergy” hypothesis. Second, the gains
from the alliance are spread more widely among the partners than would
be suggested by a random alternative, supporting a “win-win”
hypothesis. Third, smaller partners tend to experience larger percentage
gains, which is consistent with a “relative size”
hypothesis. Fourth, the market values inter-group alliance announcements
more than intra-group alliance announcements; the latter may well be
seen as redundant. This is consistent with an “inter-group
synergies” hypothesis. Fifth, we do not find a significant
difference in the abnormal returns showed by domestic-foreign alliances
and domestic-domestic alliances, although both sets of alliances show
significantly positive returns. We thus do not find support for a
“foreign firm superior” hypothesis. Finally, we find that an
investment-banking alliance has a strong positive effect on abnormal
returns, indicating that investment banking, which has been
underdeveloped in Japan relative to the U.S., may be a promising
business for financial institutions. Overall, this paper complements the
existing literature in that we analyze the value of financial
institution alliances. Our analysis reconfirms that strategic alliances
are value-enhancing. This is consistent with previous studies that find
increased value in the announcement of a strategic alliance or a merger.
Our results are consistent with the notion that financial deregulation
tends to increase competition, which, in turn, encourages firms to adopt
aggressive corporate strategies. This is viewed as a positive move by
investors, as evidenced by the average gains of the shareholders of
these alliance-forging firms. |
| URI: | http://hdl.handle.net/2451/26176 |
| Appears in Collections: | Economics Working Papers
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