Equity Alliances and the Creation of Shareholder Wealth

Posted: 20 Dec 1998

See all articles by Su Han Chan

Su Han Chan

City University of New York (CUNY) - Department of Real Estate

John Kensinger

University of North Texas - Department of Finance, Insurance Real Estate and Law

Arthur J. Keown

Virginia Polytechnic Institute & State University - Pamplin College of Business

John D. Martin

Baylor University - Department of Finance, Insurance & Real Estate

Date Written: August 1994

Abstract

We investigate share price responses to announcements of 93 business alliances using minority equity purchases to bond the agreements. On average, selling firms realize significant increases in share value while buying firms garner neutral share price responses. Analysis of financial performance reveals that the buying firms tend to perform above average among their industry peers, while the sellers tend to perform on par with industry norms. Examination of the cross-sectional variation in share price responses revealed that insider ownership is positively correlated with abnormal returns for sellers only where insider holdings exceed 25% of outstanding shares. For buyers, however, abnormal returns increase with increased ownership concentration up to 5%, but decrease as ownership concentration increases from 5% upward. Finally, a third of the alliances in our sample made significant changes in the terms of the agreement during the three years following the formation of the alliance (e.g. strengthening or extending the agreement, reducing the scope of the agreement, or terminating the agreement).

JEL Classification: G35

Suggested Citation

Chan, Su Han and Kensinger, John W. and Keown, Arthur J. and Martin, John D., Equity Alliances and the Creation of Shareholder Wealth (August 1994 ). Available at SSRN: https://ssrn.com/abstract=5763

Su Han Chan

City University of New York (CUNY) - Department of Real Estate

One Bernard Baruch Way
New York, NY New York 10010
United States

John W. Kensinger

University of North Texas - Department of Finance, Insurance Real Estate and Law ( email )

Denton, TX 76203
United States

Arthur J. Keown

Virginia Polytechnic Institute & State University - Pamplin College of Business ( email )

1016 Pamplin Hall
Blacksburg, VA 24061
United States
540-231-8647 (Phone)
540-231-3155 (Fax)

John D. Martin (Contact Author)

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4473 (Phone)
254-710-1092 (Fax)

HOME PAGE: http://hsb.baylor.edu/html/martinj

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