The event study methodology (ESM) plays an important role in analyzing and understanding the effect decisions to cooperate with other firms (both by (contractual) alliances and joint ventures) have on the value of companies involved. According to Gulati (1998: 293) strategic cooperations (alliances) include all “voluntary agreements between firms involving exchange, sharing, or co-development of products, technologies, or services. They can occur as a result of a wide range of motives and goals, take a variety of forms, and occur across vertical and horizontal boundaries.” In contrast to M&A, organizations involved retain their respective independence and identity.
The basic idea behind the ESM is that the investigation of abnormal changes of stock prices in response to an alliance announcement offers a good indication of traders’ perspectives regarding its impact on firms’ future cash flow. In a first step, abnormal returns around the alliance deal announcement date are estimated. In a second step, these abnormal stock market returns are regressed on explanatory variables.
Most event study analyses of strategic alliance decisions in the strategy literature indicate a positive abnormal return for the participating firms following the announcement (e.g., Das et al. 1998; Anand and Khanna, 2002; Chan et al., 1997; Kale et al., 2002; Oxley et al., 2009).
Research has moved on to find explanatory variables on the industry-, firm-, and alliance-level to better understand why some firms profit more than others from alliance announcements. On the industry level, most studies have focused on non-financial companies with research on financial service firms emerging only recently (see, for example, Amici et al., 2013 for banking). On the firm-level, firm size has been intensively researched, for example, indicating that smaller firms may profit more from alliance activity compared to larger players (e.g., McConnell & Nantell, 1985; Das, Sen & Sengupta, 1998). On the alliance-level, the type of alliance was found to matter, with technology alliances, for example providing greater abnormal returns compared to marketing alliances (Das, Sen & Sengupta, 1998).
Many research opportunities remain, however, including, for example research on alliances in emerging countries (most existing event studies focus on developed countries) or research building on more recent data (most existing event studies focus on historical data before the start of the 21st century).
References and further readings
Amici, A., Fiordelisi, F., Masala, F., Ricci, O. and Sist, F. 2013. 'Value creation in banking through strategic alliances and joint ventures' Journal of Banking & Finance, 38 : 1386-1396.
Anand, B. and Khanna, T. 2000. 'Do companies learn to create value?'. Strategic Management Journal, 21(3): 295-316.
Chan, S. H., Kensinger, J. W., Keown, A. J. and Marin, J. D. 1997. 'Do strategic alliances create value?'. Journal of Financial Econometrics, 46(2): 199-221.
Chiou, I. and White, L. J. 2005. 'Measuring the value of strategic alliances in the wake of a financial implosion: Evidence from Japan's financial services sector'. Journal of Banking and Finance, 29(10): 2455-2473.
Das, S. R., Sen, P. K. and Sengupta, S. 1998. 'Impact of strategic alliances on firm valuation'. Academy of Management Journal, 41(1): 27-41.
Gleason, K. C., Mathur, I. and Wiggins, R. A. 2003. 'Evidence on value creation in the financial services industries through the use of joint ventures and strategic alliances'. The Financial Review, 38(2): 213-234.
Kale, P., Dyer, J. H. and Singh, H. 2002. 'Alliance capability, stock market response, and long-term alliance success: The role of the alliance function'. Strategic Management Journal, 23(8): 317-343.
Marciukaityte, D., Roskelley, K. and Wang, H. 2009. 'Strategic alliances by financial services firms'. Journal of Business Research, 62(11): 1193-1199.
McGahan, A. M. and Villalonga, B. 2005. 'Does the value created by acquisitions, alliances, and divestitures differ?'. Working Paper, Boston University.
Oxley, J. E., Sampson, R. C. and Silverman, B. S. 2009. 'Arns race or détente? How interfirm alliance announcements change the stock market valuation of rivals'. Management Science, 55(8): 1321-1337.
Reuer, J. J. and Koza, M. P. 2000. 'Asymmetric information and joint venture performance: Theory and evidence for domestic and international joint ventures'. Strategic Management Journal, 21(1): 81-88.