Strategic alliances and earnings commonalities

• In Event: Accounting Attributes

Abstract

We examine whether strategic alliances create earnings commonalities between partner firms and whether these commonalities have capital market implications. Building on prior evidence that strategic alliances transfer knowledge, we find that pre-alliance performance differences between partners decline after alliance formation and that the partner with the lower pre-alliance performance experiences the greater post-alliance performance improvement. In addition, we find significant information transfers surrounding good news earnings announcements after alliance formation. Finally, we find that analysts who cover only one of the alliance partners prior to the alliance are more likely to extend their coverage to the second alliance partner after the alliance begins if the partner operates in a different industry and that these coverage decisions are positively associated with forecast accuracies. Our findings suggest that investors and analysts following alliance-participating firms can glean incremental value relevant information about one partner from the other.

Authors

• Michael Kimbrough, University of Maryland-College Park

• Maryjane Raffaella Rabier, McGill University