TY - JOUR
T1 - Value of strategic alliances
T2 - Evidence from the bond market
AU - Chou, Ting Kai
AU - Ou, Chin Shyh
AU - Tsai, Shu Huan
N1 - Funding Information:
We thank Shao-Chi Chang, Fang Fang, Yenn-Ru Chen, Chia-Ling Lee, Yueh-Chiao Lin, Lee-Young Cheng for their comments. We also thank participants at the 2012 FMA Annual Meetings and the 2012 Annual Conference of Taiwan Finance Association, and research workshop at the National Cheng Kung University, the National Cheng Chi University, the National Chung Cheng University, the Yuan Zi University, and the Chung Yuan Christian University for their comments on earlier versions of this manuscript. Ting-Kai Chou acknowledges financial support from the National Science Council of Taiwan (NSC 101-2410-H-194-044).
PY - 2014/7/1
Y1 - 2014/7/1
N2 - The objective of this study is to examine the relationship between strategic alliances and the cost of debt, proxied by the at-issue yield spread of bond offerings. We hypothesize that the participation of strategic alliances lowers a firm's cost of debt because it improves the level and stability of future profit streams and reduces information asymmetry among investors. Based on 2150 bond-issuing firms during the period 1985-2009, we find evidence consistent with this argument. Furthermore, we find that the mitigating effect of strategic alliances on the debt cost is much more pronounced for firms with higher product market competition, more severe financial constraints, and greater R&D investments. Taken together, this is the first paper to examine the importance of strategic alliances in the bond market and our results highlight that corporate alliance activity is valued outside the equity market and creates additional benefits that result in lower cost of debt financing.
AB - The objective of this study is to examine the relationship between strategic alliances and the cost of debt, proxied by the at-issue yield spread of bond offerings. We hypothesize that the participation of strategic alliances lowers a firm's cost of debt because it improves the level and stability of future profit streams and reduces information asymmetry among investors. Based on 2150 bond-issuing firms during the period 1985-2009, we find evidence consistent with this argument. Furthermore, we find that the mitigating effect of strategic alliances on the debt cost is much more pronounced for firms with higher product market competition, more severe financial constraints, and greater R&D investments. Taken together, this is the first paper to examine the importance of strategic alliances in the bond market and our results highlight that corporate alliance activity is valued outside the equity market and creates additional benefits that result in lower cost of debt financing.
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U2 - 10.1016/j.jbankfin.2014.01.033
DO - 10.1016/j.jbankfin.2014.01.033
M3 - Article
AN - SCOPUS:84894047280
SN - 0378-4266
VL - 42
SP - 42
EP - 59
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 1
ER -