Bankruptcy spillover effects on strategic alliance partners

Audra L. Boone and Vladimir I. Ivanov

Journal of Financial Economics, 2012, vol. 103, issue 3, 551-569

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 (search for similar items in EconPapers)
JEL-codes: G33 G34 L22 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:103:y:2012:i:3:p:551-569

DOI: 10.1016/j.jfineco.2011.10.003

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