Bankruptcy Spillover Effects on Strategic Alliance Partners

47 Pages Posted: 18 Mar 2010 Last revised: 18 Oct 2011

See all articles by Audra L. Boone

Audra L. Boone

Texas Christian University - M.J. Neeley School of Business; European Corporate Governance Institute (ECGI)

Vladimir I. Ivanov

US Securities & Exchange Commission

Date Written: June 2011

Abstract

This paper examines whether a party to a strategic alliance or joint venture suffers from spillover effects when the other partner files for bankruptcy. We find that the non-bankrupt strategic alliance partners on average experience a negative stock price reaction around their partner firm’s bankruptcy filing announcement. This negative effect is strongest for longer partnerships and those with higher returns at the announcement of the initial alliance formation. Furthermore, horizontal alliance firms in declining industries have lower returns, indicating that industry conditions can exacerbate expected problems for the non-bankrupt firm. Non-bankrupt partners also experience drops in profit margins and investment levels in the subsequent two years with the worst performance concentrated among the longer-term agreements. There is very little impact on the returns or performance for joint venture partners, which suggests that these agreements are more insulating for the partner firm.

Keywords: Strategic Alliance, Joint Venture, Bankruptcy, Spillover Effects

JEL Classification: G33, G34, L22

Suggested Citation

Boone, Audra and Ivanov, Vladimir, Bankruptcy Spillover Effects on Strategic Alliance Partners (June 2011). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1572572

Audra Boone (Contact Author)

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Vladimir Ivanov

US Securities & Exchange Commission ( email )

Washington, DC
United States
202-551-5307 (Phone)

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