Value Creation Through Joint Venture and Strategic Alliance Formation

This study examines the price reaction to the announcements of joint venture and strategic alliance formation, the main determinants of the partnering firm\u27s choices to enter a specific joint venture and a specific strategic alliance, and the impact of such alliance formation on partnering firms\u27 valuation. The analysis of the price reaction at the announcement of alliance formation indicates that market can distinguish between value creating and non-value creating alliances. I also provide evidence supporting the argument that alliance formation is not a random process. A firm\u27s choice of entering an alliance designed as diversifying or non-diversifying strategy is a result of a complex interaction of external factors and internal needs. Finally, using the change in excess value from the year prior to the year following the alliance formation, I document that alliance formation negatively impacts the valuation of the single segment partnering firms relative to their industry peers, and has no impact on the valuation of multiple segment firms. Thus, single segment firms entering alliances are facing the trade-off between the longterm benefit provided by the alliance and the immediate costs affecting the activity developed in the house