Technology and Marketing Alliances, 1996-2003

In the U.S., companies entered into more than 67,000 strategic alliances in the 1996-2003 time period. We investigate the impact of the announcement of alliances by U.S. firms using the Fama-French model. We find firms engaging in technology alliances are likely to be smaller in size and have better price-to-book ratios than firms engaging in marketing alliances. Prior studies find announcement period abnormal stock returns to be positive. Our study, in contrast, finds that technology as well as marketing alliances on average have stock price reaction not significantly different from zero. We find, on average, the market considers the announcement of an alliance by a firm - irrespective of whether it is technology or marketing alliance - as a negative signal about its internal growth options. Despite these similarities for the Technological and Marketing alliances, the determinants of abnormal returns convey a different picture for the two groups during our study period. Cross-sectional findings suggest that the first movers in technology alliances are more likely to experience exploitative hold-up behavior by their partners and that the financial viability of the partners is more important than in marketing alliances. In marketing alliances, the stock market favors those in which the partners are from the same industry, while it shows no such concern in technology alliances. Finally, we find that while alliances do not involve just transfer of wealth from one partner to the other, the bigger partner exhibits better bargaining power against the smaller partner in technology alliances than in marketing alliances.