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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27026
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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: | Chiou, Ingyu
White, Lawrence J. |
| Issue Date: | 8-Oct-2003 |
| Series/Report no.: | S-FI-03-09 |
| 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/2451/27026 |
| Appears in Collections: | Financial Institutions
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