Strategic alliances: An event study and portfolio approach

Torben Søstrup

Student thesis: Master thesis


Initially working from the theory of strategic alliances this study investigates how a portfolio approach can help create new perspectives and further richness in the analysis of strategic alliance announcements. Applying the event study methodology to data about the announcement of strategic alliances from 2004-2007 in the UK, Germany and France, this study starts out investigating the classic hypothesis of positive abnormal returns in strategic alliance announcements. Also two hypotheses about correlation and the mean return model are tested in the event study. Having obtained the cumulative abnormal returns from the event study, the goal of understanding the effects of the liability of foreignness and experience on the abnormal returns is undertaken using regression models. Several variables testing for geographical distance, experience with strategic alliances in general, and portfolio effects are developed and tested. A new approach to testing the liability of foreignness based on geographic regions is attempted. The results of the event study show surprising conclusions regarding the use of several benchmark indices in the market model, as well as the use of the mean adjusted return model, and conclusions drawn upon this model are brought into question. Diminishing returns were found in a 7 day event window using local benchmarks, but not using a world benchmark. Further, the mean return model shows surprising results that do not conform with the theory developed by Brown & Warner (1985). From the regression models investigating the liability of foreignness, experience and portfolio effects, the results show significant effects of considering portfolio diversification effects in regards to the firm’s alliances. Other variables show that size of the firm, both absolute and relative has a significant impact on the abnormal returns to shareholders, and thereby the maximization of shareholder value. More studies investigating the liability of foreignness from the more detailed and rich framework presented in this study as well as a deeper understanding of the portfolio effects related to strategic alliances are called for, based on the conclusions of this study.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2010
Number of pages98