Do Strategic Alliances and Joint Ventures Create Value for Bondholders and Shareholders?

Posted: 19 Aug 2013 Last revised: 19 Dec 2016

See all articles by Jun Chen

Jun Chen

North Dakota State University

Tao-Hsien Dolly King

University of North Carolina (UNC) at Charlotte - Department of Finance

Min-Ming Wen

California State University, Los Angeles

Date Written: ,

Abstract

This paper investigates whether joint ventures and strategic alliances create value for bondholders by examining the bond market’s reaction to announcements of these two types of cooperative business activities. Based on 2964 announcements from 1985 to 2011, we find that joint ventures and strategic alliances create significant value for bondholders. The average two-month abnormal bond return is 0.64% for joint ventures and 0.70% for strategic alliances. We find no evidence of a wealth transfer between the bondholders and stockholders. We further explore the determinants of bond value creation through hypotheses on the synergy effect, the alleviation of financial constraints, and real options. The results of our study show that financial synergy is a main driver of bondholder wealth effects in joint ventures, while operating synergy is a dominant factor in strategic alliances. We also find evidence to support the real option hypothesis for both events. Finally, we show that the structure of bond contracts plays an important role in the link between synergy and abnormal bond returns.

Keywords: Joint Ventures, Strategic Alliances, Bondholder Value, Stockholder Value

JEL Classification: G14, G32, L24, D74

Suggested Citation

Chen, Jun and King, Tao-Hsien Dolly and Wen, Min-Ming, Do Strategic Alliances and Joint Ventures Create Value for Bondholders and Shareholders? (,). Journal of Banking and Finance, 2015. Available at SSRN: https://ssrn.com/abstract=2312047 or http://dx.doi.org/10.2139/ssrn.2312047

Jun Chen

North Dakota State University ( email )

Fargo, ND 58105
United States

Tao-Hsien Dolly King (Contact Author)

University of North Carolina (UNC) at Charlotte - Department of Finance ( email )

9201 University City Boulevard
Charlotte, NC 28223
United States
704-687-7652 (Phone)
704-687-6987 (Fax)

Min-Ming Wen

California State University, Los Angeles ( email )

5151 State University Dr
Los Angeles, CA 90032
United States

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