[Jurnal]the Wealth Effect of S Strategic Alliances

7/31/2019 [Jurnal]the Wealth Effect of S Strategic Alliances

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The Wealth Effect of Japanese-U.S. Strategic Alliances

With the integration of global markets and rapid shifts in technologies, the

formation of cross-border interfirm cooperation has become a favored strategy of

international expansion (Gulati, 1995). Alliances with foreign partners are an important

strategic move that could provide access to outside sources of competitive advantage in the

global network (Kogut, 1983, and Lummer and McConnell, 1990). For example, TheWall

Street Journal (WSJ) reported on August 25, 1998 that Lockheed Martin Corporation and

Japans Mitsubishi Electric Corporation had reached an agreement that provided

Mitsubishi with access to Lockheed technology, while helping Lockheed to expand sales in

Japan. The two companies would jointly develop electronic missile-control systems and

radar devices for ships and planes. Investors responded positively to this agreement.

When the agreement was announced, the share prices of both Lockheed and Mitsubishi

rose sharply. Clearly, the announcement of an international alliance affected the equity

values of the participating firms.

Although alliances with foreign partners take various forms, much of the previous

research focuses only on the stock valuation impact of announced international joint

ventures (IJVs) that establish separate entities under shared ownership (see, e.g., Lummer

and McConnell, 1990; Chen, Hu, and Shieh, 1991; Crutchley, Guo, and Hansen, 1991; and

Gupta and Misra, 2000). Nevertheless, a significant number of international strategic


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across industries (Zagnoli, 1987, and Chan, Kensinger, Keown, and Martin, 1997). In

addition, non-equity ISAs provide more organizational flexibility to the partnering firms

than do IJVs (Mody, 1993). Non-equity ISAs can form new links with partnering firms or

disband quickly in response to changing market demands. This flexible structure

facilitates experimentation with new combinations of participants in the development of

new products, technologies, or markets. Therefore, non-equity ISAs are particularly

valuable to those firms that compete in environments characterized by rapid rates of

change in product design and process technologies, with significant risks of failure at the

development stage, and rapid obsolescence of products once they enter production (Chan

et al., 1997).

In this paper, our objective is to examine the wealth effect of non-equity ISAs on

the shareholders of the partnering firms. We also investigate the importance of differences

in the characteristics of firms and alliances in determining the valuation consequences

across firms. We examine a sample of non-equity ISAs formed between Japanese and U.S.

firms over the 1989-1998 period. Focusing on the sample of Japanese-U.S. strategic

alliances enables us to investigate the wealth gains for both domestic and foreign partners.

This sample also allows us to examine the determinants of value creation without

confounding influences from various business environments when ISA partners come from

different countries.1

Our study is different from Chan et al. (1997), Das, Sen, and Sengupta (1998), and


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In this section, we discuss the benefits and costs associated with non-equity ISAs.

We then investigate the determinants of their valuation impact.

A. The Benefits and Costs Associated with ISAs

Cross-border interfirm collaboration offers several benefits to the partnering firms.

Many global alliances are motivated by the recognition that self-sufficiency is too slow and

costly to bring success in an intensively competitive global market (Inkpen, 1995). With

the aid of foreign partners, ISAs may help firms to explore new market opportunities,

reduce investment risks, or establish distribution channels more efficiently and effectively.

These advantages are particularly critical for firms with limited resources and for those that

compete in an attractive, but unfamiliar, market (Harrigan, 1987). Thus, ISAs serve as an

important move that facilitates international expansion strategy.

Another benefit of ISAs is based on the arguments from transaction costs

economics (Williamson, 1989). The proponents of the transaction costs approach

emphasize that because neither partner has to bear the full risk and costs of the alliance

activities, the hybrid organizational form of ISAs involves a mutual commitment not

commonly found in market transactions. ISAs simultaneously reduce both the uncertainty

and the costs of resources investment associated with full-scale internalization. With a

properly designed governance structure, ISAs are beneficial in reducing costs associated

with negotiating, implementing, and monitoring cross-border interfirm transactions.


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firms domain by providing access to strategic resources in physical capital, technology,

manufacturing facilities, and others, from their partners. These strategic resources are

usually scarce and lack direct substitutes (Oliver, 1997). In addition, firms may even

obtain access to other resources beyond those of their alliance partners. Through alliances

with foreign partners, firms might enhance social resources by achieving an important

position advantage in the global network.

From the perspective of organizational learning, ISAs also allow firms to focus on

their own core competence, and at the same time, to learn to enhance other capacities from

collaborating with partnering firms. Through the platform of ISAs, firms may acquire tacit

skills and knowledge embedded in their foreign partners that are crucial for remaining

competitive in the rapidly changing global markets (Porter and Fuller, 1986). Such

knowledge can be useful in strengthening the strategic, operational, and tactical aspects of

businesses. Furthermore, ISAs may improve firms competitive position through learning

country-specific comparative advantages from their foreign partners (Shan and Hamilton,

1991).

Despite these advantages, ISAs are often plagued by interest conflicts between

partnering firms. Alliances are essentially incomplete contracts because ex ante, it is often

impossible to completely specify the future contingencies that may arise in the

implementation of the agreements (Hennart, 1988, and Jensen and Meckling, 1991). The

contractual incompleteness leads to the possibility that firms could expose themselves to


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absorptive capacity from the alliances. Furthermore, the specialized organizational

learning from prior experience is not easily imitated and can actually become an important

competitive advantage to the firm (Collis, 1996). Therefore, we expect that ISAs are more

valuable for the partnering firms that have a greater level of prior involvement in

cross-border interfirm collaboration.

5. Profitability

More profitable firms may have a smaller need to engage in the risks of

multinational activity, making the risk-reward ratio for ISAs less favorable for these firms,

and yielding a lower value gain for more profitable firms. In addition, once engaged in

ISAs, more profitable partners are likely to commit more resources (Glaister and Buckley,

1996). Because of this, less profitable partners may have a greater chance to improve and

acquire new resources, while more profitable partners may have less to gain.

Das et al. (1998) argue that in some ISAs, the more profitable, established firms are

likely to be the first movers, because they may need the special capabilities of innovative,

less profitable firms. However, being the first mover usually results in weaker bargaining

power in the process of negotiating alliances, suffering from the hold-up problem (Hamel,

Doz, and Prahalad, 1989).

To the extent that the opportunistic behavior impedes the

stability of and synergy created from ISAs, more profitable firms are likely to suffer from

first-mover disadvantages. Thus, we expect them to receive less wealth gains in ISAs.


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positive. Similar to U.S. partners, Japanese partners do not exhibit significant abnormal

returns for any other time window prior to or following the announcement period.

We also investigate how the stock market values the international strategic alliance

as a whole. We first create a value-weighted daily return series for Japanese and U.S.

partner firms, using the partnering firms market values of equity as weights. We then

perform an event study on this data series. The results for our 178 Japanese-U.S. strategic

alliances indicate that the average (median) two-day announcement-period abnormal

return is a statistically significant 0.3% (0.1%), and 55% of the announcement effects are

positive. None of the other event-period abnormal returns are statistically significant.

Therefore, the ISAs in our sample receive significantly positive abnormal returns. Our

results are consistent with Lummer and McConnell (1990), Chen et al. (1991), Crutchley et

al. (1991), and Chen, Ho, Lee, and Yeo (2000) for international joint ventures, McConnell

and Nantell (1985) and Koh and Venkatraman (1991) for domestic joint ventures, and

Chan et al. (1997) and Allen and Phillips (2000) for domestic strategic alliances.

We further calculate the dollar value of gains to the shareholders of each of the

partnering firms in Japanese-U.S. strategic alliances. Using the two-day (1, 0)

announcement-period abnormal return and the firms market value of equity, we find that

at 1998 prices, the average dollar gain to U.S. shareholders is US$34.7 million and the

average dollar gain to Japanese shareholders is US$43.4 million. The combined dollar

gain for a value-weighted portfolio of U.S. and Japanese partners in the same strategic


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to the characteristics of firms and alliances. We use t-tests and Wilcoxon signed-rank tests

to test the hypotheses that the means and medians are equal to zero. We use t-tests to assess

the differences in means between subsamples. To check whether our results are robust to

possible deviations from non-normality, we also perform nonparametric Kruskal-Wallis

tests. The number of observations in Table III varies due to data availability.

[Insert Table III here]

To investigate the relative size hypothesis, we classify the partnering firms in the

same alliance as either the large or small partner, according to their relative firm size.

Panel A shows that the small partner subsample has a positive average (median)

announcement-period abnormal return of 2.18% (1.11%), which is statistically significant

at the 1% level. In contrast, the large partner subsample experiences an insignificant

average (median) abnormal return of 0.24% (0%). The mean difference between the

abnormal returns for these two groups of partnering firms is 1.94% and is statistically

significant at the 1% level. This result is robust to possible deviations from non-normality,

since it also holds for the nonparametric Kruskal-Wallis test statistic. Our results support

the relative size hypothesis that the stock markets responses to announcements of ISAs are

more favorable for the participating firms that are smaller than their alliance partner. Our

findings are consistent with McConnell and Nantell (1985) and Koh and Venkatraman

(1991) for domestic joint ventures, and Chan et al. (1997) and Das et al. (1998) for


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alliances include licensing agreements, research or development agreements, technology

transfer or systems integration agreements, and combinations involving one or more of the

above types of agreements, whereas nontechnical alliances consist of marketing and

distribution agreements. We find that both technical and nontechnical alliances produce

significantly positive announcement-period abnormal returns. A t-test shows that the

mean difference between the abnormal returns for the technical and nontechnical

subsamples is statistically significant at the 10% level. However, this result does not hold

for the nonparametric Kruskal-Wallis test statistic. Therefore, our evidence does not

provide strong support for the hypothesis that technical ISAs involving the possible

transfer or pooling of technological knowledge add more value to the partnering firms than

do nontechnical/marketing ISAs. Our results are in contrast to Das et al. (1998) for

domestic strategic alliances, who find that the stock market rewards technical alliances

more than marketing alliances.

Panel E stratifies the sample according to whether partnering firms in the same

Japanese-U.S. strategic alliance are from related businesses. We define related alliances

as those between firms in the same four-digit SIC code.8 We find that partnering firms in

the related alliances do not experience significant announcement-period abnormal returns,

but those in the unrelated alliances experience significantly positive abnormal returns.

However, the abnormal returns for these two subsamples are not significantly different at

the conventional levels. Therefore, we find no strong support for the hypothesis that the


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characteristics we examine. A multivariate analysis incorporates the interaction between

these variables and captures the overall effect of the distinguishable characteristics that

affect the wealth effect of the alliances. To further examine the effect of these factors, we

estimate a multivariate cross-sectional regression of the announcement-period abnormal

returns to the partnering firms. We estimate the regression using weighted least squares,

with the weights equal to the inverse of the standard deviation of the market-model residual.

We use this procedure to obtain efficient estimates, since the variances of the

market-model residuals vary across announcers (Lang,Stulz, and Walkling, 1991).

Table IV presents cross-sectional regression analyses of the announcement-period

abnormal returns for the sample.12

Model 1 includes all the potential explanatory variables.

We define relative size as the announcing firms size divided by its partners size.13 The

high-tech industry dummy equals one for partners that operate in high-tech industries, and

zero otherwise. The technical-alliance dummy equals one if alliances include licensing

agreements, research or development agreements, technology transfer or systems

integration agreements, and combinations involving one or more of the above types of

agreements, and zero otherwise. The business relatedness dummy equals one if all the

partners in the same alliance have the same four-digit SIC code, and zero otherwise. We

measure previous experience by the number of both international non-equity alliances and

joint ventures with partners from foreign countries within five years preceding the

announcement date.14 The currency strength dummy equals one when the partners


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Consistent with our earlier results in Table III, Model 1 shows that the partnering

firms share price responses are significantly negatively related to its return on assets.16

More profitable firms have less need to engage in the risks of multinational activity, which

makes the risk-reward ratio for ISAs less favorable for these firms. Therefore, value gains

in ISAs are smaller for the partnering firms with higher profitability.

Model 1 shows that the partnering firms share price responses are not significantly

affected by the high-tech industry dummy, the technical-alliance dummy, the

business-relatedness dummy, the previous experience variable, and the currency strength

dummy. The results suggest that these factors are relatively unimportant in assessing the

valuation effects of Japanese-U.S. strategic alliances.

In Model 2, we include several additional explanatory variables. A low-q firms

ISA with a high-q firm may be more advantageous for the low-q firm than for the high-q

firm, because the former has fewer opportunities and partnering with a high-q firm

improves the opportunity set. In Model 2, we include an interaction variable between the

relative q dummy and announcing firms q. The relative q dummy equals one when the

announcing firms q level is lower than its partners q level, and zero otherwise.

Transferring production between countries in response to foreign exchange

movements may work better if both firms in ISAs are large enough, in the sense that they

both have substantial production capacity. We test whether the currency strength

hypothesis holds for partnering firms that are both relatively large, defined by whether the


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effects of country-specific differences. The country dummy is equal to one for the U.S.

partnering firms, and zero otherwise.

Model 2 shows that shareholders still earn significantly larger abnormal returns in

Japanese-U.S. strategic alliances when the partnering firms have a relatively small size,

higher growth opportunities, or less profitability. In addition, we find that the coefficient

of the interaction variable between profitability and the two-way alliance dummy is

significantly positive. This evidence suggests that more profitable firms are less likely to

suffer from first-mover disadvantages in two-way ISAs. Model 2 also shows that the rest

of the potentially influential variables, including the other additional explanatory variables,

are relatively unimportant in assessing the valuation impact of ISAs.

The findings in Table IV might be biased, because we treat each announcement as a

unique data point and give extra weight to firms that engage in multiple ISAs. To address

this concern, we re-estimate the regressions on the sample that includes only the first ISA

announcement by each firm. Although not reported, the results from this sample are

qualitatively similar and our conclusions remain unchanged.

IV.Operating Performance for Partners Subsequent to AlliancesThe operating performance of alliance partners surrounding announcements

provides additional evidence on the economic impact of ISAs. ISAs may have a significant

impact on the operating performance of partners through various channels. First, ISAs


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We examine the operating performance of the partnering firm in the alliance

announcement year (year 0) and over the three-year period before and after the

announcement year (years 3 to 1 and years +1 to +3). To measure the change in its

operating performance surrounding the alliance, we also compare the partnering firms

performance variables in year 0 with the variables in years -3 to -1 and with those in years

+1 to +3. To control for both industry and size effects, we adjust the change in the

performance variables by subtracting from the announcing firms change the matching

firms change over the same period. The matching firm has the closest firm size, measured

by the market value of equity 30 days before the announcement, among the firms with the

same four-digit SIC code as the announcing firm.

Table V presents the industry-and-size-adjusted changes in operating performance

of partnering firms surrounding Japanese-U.S. strategic alliances. We use t-tests and

Wilcoxon signed-rank tests to test the hypotheses that the means and medians are equal to

zero. The number of observations varies according to availability.

[Insert Table V here]

In year 0, U.S. partners perform better than their matching firms, according to the

mean and median industry-and-size-adjusted OIBD/assets, OCF/assets, NI/assets, and

sales/assets. Our findings suggest that U.S. firms that enter into ISAs outperform their

matching firms in the year of the ISA formation. In contrast, in year 0 Japanese partners do


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Prior to the announcement of ISAs, both U.S. and Japanese partners in the sample

generally experience no significant changes in operating performance. All measures of

mean and median changes in operating performance between year 0 and years 3, 2,

and 1 are statistically insignificantly different from zero. The exception is Japanese

partners showing that their median change in OIBD/assets between year 0 and year3 and

their median change in OCF/assets between year 0 and year1 are marginally negative at

the 10% level. Therefore, we find no evidence that performance either improves or

deteriorates in the years prior to the formation of ISAs, consistent with the findings for

domestic strategic alliances in Chan et al. (1997).

The U.S. partners in the sample experience significant improvements in operating

performance after a strategic alliance with Japanese firms. All measures of mean and

median changes in operating performance between year 0 and years +1, +2, and +3 are

positive and mostly statistically significant at the 10% level or better. The Japanese

partners also show a similar trend in improving operating performance subsequent to the

alliance. Our evidence is in contrast to Chan et al. (1997), who find that partnering firms

do not experience significant changes in operating performance following a domestic

strategic alliance.

In our sample, since different partnering firms engage in differing numbers of ISAs,

it is likely that in many cases the post-announcement period includes the announcement of

a subsequent ISA. Such overlaps could bias the findings reported in Table V. To examine


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V. Conclusion

In this study, we provide evidence on the wealth effect of international strategic

alliances that do not involve equity ownership. We do so by examining a sample of

Japanese-U.S. alliances. We show that on average, both Japanese and U.S. shareholders

benefit from the formation of international alliances. Our findings suggest that

international strategic alliances produce a positive wealth effect for the combined

partnering firms, with no evidence of wealth transfers between partners.

We also relate the partnering firms share price responses in the Japanese-U.S.

alliances to the characteristics of firms and alliances. We find that the

announcement-period abnormal returns to the partnering firms are significantly negatively

related to their relative firm size and profitability, and are significantly positively related to

their growth opportunities. We further show that two-way international strategic alliances

mitigate the negative impact of profitability on the partnering firms price reactions.

We also examine the operating performance for partnering firms surrounding

announcements of Japanese-U.S strategic alliances. We show that both Japanese and U.S.

partnering firms experience significant improvements in operating performance over the

three-year period following the formation of international strategic alliances.


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3.On March 24, 1994, Japanese supermarket giant Ito-Yokado Co. announced anagreement with U.S. retail conglomerate Wal-Mart Stores Inc. that allowed Ito-Yokadoto import low-cost Wal-Mart goods. Aside from the 143 general-merchandise stores

Ito-Yokado ran under its own name, the company also controlled Seven-Eleven Japan,one of Japans most successful convenience-store chains. For its part, Wal-Mart gainedaccess to one of Japans most entrenched and sophisticated retail networks.

E. ISAs for Enhancement of Competitive Advantages

1.On April 21, 1995, Motorola Inc. agreed to create a common standard with Fujitsu Ltd.of Japan for a wireless alternative to ordinary telephone service. The agreement held outthe possibility that other makers of telephones and related equipment adopted a commonapproach to wireless telephone service designed to satisfy the needs of non-mobilecallers.

2.On October 25, 1995, 3DO Co. agreed to license its next-generation video-gametechnology, M2, to Japans Matsushita Electric Industrial Co. In turn, Matsushita got tosublicense the technology to other companies as well as applied it itself. New players

based on the technology were expected to hit the U.S. market in the latter half of 1996,intensifying a war of advanced players being waged by 3DO, Sega Enterprises Ltd.,Sony Corp., and Nintendo Co. The industry was undergoing a transition from an agingfleet of 16-bit game players to ones using 32 and 64 bits of computing power. The M2technology was considered among the most advanced of all. Thus, 3DO aimed to usemulti-year pre-emptive patenting and licensing to erode competitors positions in thispromising technology.

3.On April 8, 1998, Microsoft Corp. and Sony Corp. announced a strategic alliance to linkpersonal computers and consumer-electronics devices, thusmoving the two companiescloser together on technology standards for digital television and other consumerproducts. Microsoft licensed software from Sony which was used with the networkingtechnology, and used the software with versions of Windows CE that Microsoft wastrying to make a standard for non-PC products. Sony, in turn, licensed Windows CE foruse in certain products. Thus, new standards for integrated consumer products werecreated through the mutual licensing on technology.

F. ISAs for Getting Access to Technology and Resources

1.On December 6, 1990, Matsushita Electric Industrial Co., eager to bolster its minusculecomputer business, signed an agreement with Sun Microsystems to co-develop a new


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This platform allowed Matsushita to develop products quickly and be assured of a largeand growing market.

2.On July 26, 1991, Hitachi Ltd. and TRW Inc. formed a strategic alliance to pursueopportunities in space technologies. TRW was one of the top space suppliers in the U.S.,but had a minimal presence in Japan compared to other U.S. competitors such as GeneralElectric Co. and Hughes Aircraft. While Hitachi was one of Japans largest electronicscompanies, it had only a tiny space business compared with Japanese competitors NECCorp., Toshiba Corp., and Mitsubishi Electric Corp.

3.On May 10, 1995, PictureTel Corp., the global videoconferencing company, and NipponTelegraph and Telephone (NTT), the worlds largest telecommunications company,announced a contractual collaboration on the development of a videoconferencingsystem for the Japanese markets. NTT was in charge of reselling Phoenix, anISDN-based desktop videoconferencing system developed by PictureTel, to bothbusiness and consumer customers in Japan. PictureTel also completed the worldslargest multipoint videoconferencing network for NTT, which could handlevideoconferences of up to 1,000 sites or more, connecting more than 50,000 attendants

from up to 1,000 or more sites in Japan and the United States.

G. ISAs Showing a Profound Impact on the Partners Revenues

1. On September 11, 1990, Software Toolworks, a developer and publisher ofentertainment and personal productivity computer software, and Nintendo Corp.initiated an alliance. Software Toolworks received a license from Nintendo to marketNintendo Entertainment System in Japan. In the following year, Software Toolworks

announced the marketing of Nintendos series of Entertainment System. One year afterthe initial announcement of the alliance pact, Software Toolworks announced its returnto profitability. It reported revenue of $22.2 million and net income of $1.18 million or$0.05 per share for its fiscal second quarter ended September 30, 1991. For thecomparable quarter in the previous fiscal year, the company reported revenue of $14million and a net loss of $7 million or $0.31 per share on a restated basis. Revenues forthe September 1991 quarter increased 59% over the comparable quarter last year.

2. On December 26, 1991, IBM and Hitachi agreed that Hitachi would buy at least 2,000computers a month beginning in April to sell under its own name in Japan. Thecollaboration went smoothly in that IBM expanded its share in the Japanese market,nearly doubling from 6.8% to 10.1% in 1994; at the same time, Hitachis share in the PCmarket rose from 0.9% to 2.7%.


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domestic information services sales (9.74%), and it was expected to double in thefollowing two years after continuing this cooperation.


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Williamson, O., 1989, Transaction Cost Economics, in R. Schmalensee and R.Willig,Ed.,Handbook of Industrial Organization, Amsterdam, Elsevier Science.

Xie, F. and W. Johnston., 2004, Strategic Alliances: Incorporating the Impact ofE-Business Technological Innovations, Journal of Business and IndustrialMarketing 19, 208-222.

Zagnoli, P., 1987, Inter-Firm Agreements as Bilateral Transactions, The Conference onNew Technology and New Intermediaries: Competition, Intervention andCooperation in Europe, America and Asia. Center for European Studies, StanfordUniversity.

Table I. Sample Distribution of Japanese-U.S. Strategic Alliances


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This table presents the sample distribution of announcements of 178 Japanese-U.S. strategic alliances from 1989 to1998. We obtain our sample from the Securities Data Corporations (SDC) Worldwide Merges, Acquisitions, andAlliances database. We measure firm size by the market value of equity 30 days before the announcement. We base

the industries in our sample on the primary four-digit SIC code in Datastream. For ease of comparison, we convertthe measure of firm size to 1998 dollars using the Consumer Price Index from IMFs International Financial Statistics.We base our sample distribution by type of cooperative agreement on SDCs classification scheme and the sampledistribution by industries on Business Weeks classification scheme. Relative size is the announcers firm sizedivided by its partners. We use a simple measure of Tobins q to estimate the announcing firms growthopportunities: the average ratio of the market to book value of the firms assets for three years preceding theannouncement, where the market value of assets equals the book value of assets minus the book value of commonequity plus the market value of common equity. The high-tech industry dummy equals one for partners that operatein high-tech industries, and zero otherwise. We measure previous experience by the number of both internationalnon-equity alliances and joint ventures with partners from foreign countries within five years preceding theannouncement date. We measure profitability by the ratio of net income to assets for the fiscal year prior to theannouncement. We assess differences in means and medians using t-tests and Wilcoxon rank-sum tests, respectively.

Panel A. Sample Distribution by Year

Year Number of Announcements Percent of Sample

1989 8 4.51990 15 8.41991 25 14.01992 28 15.7

1993 25 14.01994 27 15.21995 21 11.81996 10 5.61997 10 5.61998 9 5.1Total 178 100.0

Panel B. Sample Distribution by Frequency

Number of Number of Illustrative CompanyAnnouncements Firms U.S. Japan

20 1 Hitachi

14 1 Toshiba

11 2 IBM NEC10 1 Sony

9 2 Texas Instruments Fujitsu8 1 Mitsubishi Electric

7 2 Microsoft Sanyo Electric6 4 Motorola; HP Nippon Telegraph & Telephone;Matsushita

5 3 Sun Microsystems; AT&T Canon4 6 Eastman Kodak; Apple;

IntelKirin Brewery


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Table II. Two-Day Announcement-Period Abnormal Returns Associated with Japanese-U.S. Strategic Alliances

This table presents two-day (-1, 0) announcement-period abnormal returns of the partnering firms surrounding the announcements of 178 Japanese-U.S.

strategic alliances from 1989 to 1998. Day 0 is date of the announcement in The Wall Street Journal. We estimate two-day announcement-period abnormalreturns by using the standard market model procedure, with parameters estimated for the period 200 days to 60 days before the announcement. To computecombined abnormal returns, we first create a value-weighted daily return series for both Japanese and U.S. partnering firms in the same alliance, using thepartnering firms market values of equity as weights. We then perform an event study on this data series. We use t-tests and Wilcoxon signed rank tests to testthe hypotheses that the means and medians are equal to zero, respectively.

MeanAbnormal

Return (%)

MedianAbnormal

Return (%)

StandardDeviation

(%)

FirstQuartile

(%)

ThirdQuartile

(%)

Range

(%)U.S. partners 2.00*** 0.78*** 5.88 -1.06 3.68 41.37Japanese partners 0.42** 0.26** 2.22 -0.81 1.68 15.76Combined Japanese-U.S. partners 0.30** 0.10* 1.84 -0.97 1.45 12.45***Significant at the 0.01 level.

**Significant at the 0.05 level.*Significant at the 0.10 level.


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Table IV. Cross-Sectional Regression Analyses of Factors Affecting

Announcement-Period Abnormal Returns to Partnering Firms

in the Japanese-U.S. Strategic Alliances


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in the Japanese U.S. Strategic Alliances

This table presents cross-sectional regression analyses of announcement-period abnormal returns to partnering firms in the Japanese-U.S.strategic alliances. Relative size is the announcers firm size divided by its partners. We measure firm size by the market value of equity30 days before the announcement. We use a simple measure of Tobins q to estimate the announcing firms growth opportunities: theaverage ratio of the market to book value of the firms assets for three years preceding the announcement, where the market value of assetsequals the book value of assets minus the book value of common equity plus the market value of common equity. The relative q dummyequals one when the announcing firms q level is lower than its partners, and zero otherwise. The high-tech industry dummy equals one forpartners that operate in high-tech industries, and zero otherwise. The technical-alliance dummy equals one if alliances include licensingagreements, research or development agreements, technology transfer or systems integration agreements, and combinations involving oneor more of the above types of agreements, and zero otherwise. The business relatedness dummy equals one if all the partners in the samealliance have the same four-digit SIC code, and zero otherwise. We measure previous experience by the number of both internationalnon-equity alliances and joint ventures with partners from foreign countries within five years preceding the announcement date. Wemeasure profitability by the ratio of net income to assets for the fiscal year prior to the announcement. The two-way alliance dummy isequal to one for two-day alliances, and zero otherwise. The currency strength dummy equals one when the partners domestic currency isrelatively strong, and zero otherwise. The larger partners dummy is equal to one when an ISA involves two large partners, and zero

otherwise. The country dummy is equal to one for the U.S. partnering firms, and zero otherwise. We estimate all regressions in the tableusing weighted least squares, with the weights equal to the reciprocal of the standard deviation of the market model residual. t-statistics arein parentheses. The number of observations is smaller because of data unavailability.

Model

Variable (1) (2)

Intercept 0.5350 1.2977(0.81) (1.09)

Relative size -0.0116 -0.0111(-2.40)** (-2.21)**

Growth opportunities 0.3649 0.3762(5.96)*** (6.05)***

Growth opportunities Relative q dummy -0.1323

(-0.60)

High-tech industry dummy 0.5442 0.3945(1.33) (0.95)

Technical-alliance dummy 0.0897 0.0865(0.24) (0.21)

Business relatedness dummy -0.4134 -0.4215(-0.77) (-0.77)

Prior experience -0.1481 -0.5186(-1.20) (-1.13)

Profitability -0.1065 -0.1555(-5.27)*** (-5.20)***

Profitability Two-way alliance dummy 0.0899

(2.20)**

Currency strength dummy 0.2178 0.2850(0.65) (0.78)

Currency strength dummy Larger partners dummy 0.0193

(0.04)

Two-way alliance dummy -0.3325


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54

Table V (Continued)

U.S. Partner Japanese Partner

Mean Median N Mean Median N

Panel C. Net Income/Assets

Year 0 level 0.0215* 0.0534*** 176 0.0297*** 0.0274*** 174Industry-and-size-adjusted year 0 level 0.0211** 0.0140** 176 0.0015 0.0022 174Industry-and-size-adjusted change:

Change from year -3 to 0 0.0023 0.0102 171 0.0003 -0.0006 172Change from year -2 to 0 0.0175 0.0070 176 0.0022 0.0035 174Change from year -1 to 0 0.0151 -0.0045 176 0.0069 0.0003 174

Change from year 0 to 1 0.0359*** 0.0107** 173 0.0066*** 0.0039*** 174Change from year 0 to 2 0.0478*** 0.0134** 166 0.0089** 0.0038*** 174Change from year 0 to 3 0.0581*** 0.0253*** 156 0.0081** 0.0030** 173

Panel D. Asset Turnover

Year 0 level 1.0921*** 1.0432*** 177 1.0044*** 0.9952*** 174Industry-and-size-adjusted year 0 level 0.0568* 0.0484* 177 0.0104 0.0237 174Industry-and-size-adjusted change:

Change from year -3 to 0 -0.0239 -0.0295 174 -0.0039 0.0161 174Change from year -2 to 0 0.0168 0.0018 176 -0.0032 0.0155 174Change from year -1 to 0 0.0075 -0.0086 176 -0.0083 -0.0114 174Change from year 0 to 1 0.0276** 0.0045* 174 0.0208** 0.0220*** 174Change from year 0 to 2 0.0490** 0.0216 167 0.0279** 0.0148* 174Change from year 0 to 3 0.0489** 0.0216** 156 0.0301** 0.0224** 173

***Significant at the 0.01 level.**Significant at the 0.05 level.

*Significant at the 0.10 level.

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[Jurnal]the Wealth Effect of S Strategic Alliances