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Bankruptcy spillover effects on strategic alliance partners

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  • Boone, Audra L.
  • Ivanov, Vladimir I.
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    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 103 (2012)
    Issue (Month): 3 ()
    Pages: 551-569

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    Handle: RePEc:eee:jfinec:v:103:y:2012:i:3:p:551-569

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Strategic alliance; Joint venture; Bankruptcy; Spillover effects;

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    References

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    Cited by:
    1. Lange, Knut & Müller-Seitz, Gordon & Sydow, Jörg & Windeler, Arnold, 2013. "Financing innovations in uncertain networks—Filling in roadmap gaps in the semiconductor industry," Research Policy, Elsevier, vol. 42(3), pages 647-661.
    2. Bodnaruk, Andriy & Massa, Massimo & Simonov, Andrei, 2013. "Alliances and corporate governance," Journal of Financial Economics, Elsevier, vol. 107(3), pages 671-693.
    3. Bradley, Daniel & Yuan, Xiaojing, 2013. "Information spillovers around seasoned equity offerings," Journal of Corporate Finance, Elsevier, vol. 21(C), pages 106-118.

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