Value of strategic alliances: Evidence from the bond market

Ting-Kai Chou, Chin Shyh Ou, Shu Huan Tsai

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)42-59
Number of pages18
JournalJournal of Banking and Finance
Volume42
Issue number1
DOIs
Publication statusPublished - 2014 Jul 1

Fingerprint

Strategic alliances
Bond market
Cost of debt
Debt financing
Product market competition
Investors
Profit
Costs
Financial constraints
Alliances
Information asymmetry
Debt
Yield spread
Equity markets
Participation

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Chou, Ting-Kai ; Ou, Chin Shyh ; Tsai, Shu Huan. / Value of strategic alliances : Evidence from the bond market. In: Journal of Banking and Finance. 2014 ; Vol. 42, No. 1. pp. 42-59.
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Value of strategic alliances : Evidence from the bond market. / Chou, Ting-Kai; Ou, Chin Shyh; Tsai, Shu Huan.

In: Journal of Banking and Finance, Vol. 42, No. 1, 01.07.2014, p. 42-59.

Research output: Contribution to journalArticle

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