Measuring the Value of Strategic Alliances in the Wake of a Financial Implosion: Evidence from Japan's Financial Services Sector
54 Pages Posted: 31 Oct 2008
Date Written: October 2003
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 â¬Ssynergyâ¬? hypothesis. Second, the gains from the alliance are spread more widely among the partners than would be suggested by a random alternative, supporting a â¬Swin-winâ¬? hypothesis. Third, smaller partners tend to experience larger percentage gains, which is consistent with a â¬Srelative sizeâ¬? 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 â¬Sinter-group synergiesâ¬? 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 â¬Sforeign firm superiorâ¬? 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.
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