Bankruptcy spillover effects on strategic alliance partners

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...

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Bibliographic Details
Published in:	Journal of financial economics 2012-03, Vol.103 (3), p.551-569
Main Authors:	Boone, Audra L., Ivanov, Vladimir I.
Format:	Article
Language:	eng
Subjects:	Alliances Bankruptcy Impact analysis Joint venture Joint ventures Profit margins Rates of return Spillover effects Spillovers Stock prices Strategic alliance Strategic management Studies
Online Access:	Get full text
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Summary:	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.
ISSN:	0304-405X 1879-2774