Performance is a major focus in research on alliances (Gulati 1998). Researchers have studied this issue both at the alliance level (e.g., Beamish 1994, Dussauge/Garrette 1995, Glaister/Buckley 1999, Lyles/Baird 1994) and at the partner level (e.g., Chan et al. 1997, Dyer 1996, Hagedoorn/Schakenraad 1994). The alliance-level studies are concerned with the performance of an alliance itself, whereas the partner-level studies are concerned with the outcomes of alliance participation brought to partner firms. Included in the partner-level studies are two important streams of research that examine the impact of alliance formation on firm value. One stream focuses on contractual alliances (e.g., Chan et al. 1997; Das/Sen/Sengupta 1998), while the other considers joint ventures (e.g., Koh/Venkataraman 1991, Madhavan/Prescott 1995). As previous studies have indicated, these two types of alliances tend to differ significantly in many aspects, including ownership and control, making it difficult to combine them into a single study. For this reason, this study aims to expand the first stream of research by examining the conditions under which contractual alliances create firm value in the global alliance context.
Previous studies on contractual alliances have provided valuable insights into alliance formation and value creation for the alliance partners, but they appear to have made a limited contribution to the literature in the following senses. First, these studies seem not to be comprehensive and systematic in studying the conditions for value creation, although they examine some conditions like alliance type (i.e., technological vs. marketing: Das et al. 1998; horizontal vs. non-horizontal: Chan et al. 1997), uncertainty (Das et al. 1998), and industry globalization (Park/Kim 1999). Understanding such conditions more completely and systematically is likely to have important managerial implications for creating appropriate alliances in terms of partner selection and operational details to maximize firm value. Second, the previous studies examine each condition for value creation without controlling the effects of other conditions. Various conditions in fact exist simultaneously in an alliance and, thus, it seems important to examine each condition while holding the effects of other conditions constant. Third, the prior studies tend to focus primarily on the domestic alliance context. Considering the recent proliferation of global alliances caused by increased global competition (Park/Kim 1999), it is critical to investigate the effects of alliance formation on firm value in the global alliance context. To our knowledge, this issue has not yet been directly studied in the literature.
We intend to address gaps in the literature mentioned above through a more systematic investigation of the determinants of value creation for partner firms in the global alliance context. Since the market value of a firm is captured in the stock price of the firm, value creation associated with global alliances means abnormal returns to partner firms. These abnormal returns are reflected in increases in stock prices over and above expected levels (Brown/Warner 1980). We argue that firm value is affected by global alliances on three levels of determinants: the alliance, partner, and contextual levels. The alliance characteristics that we examine include the scope of cooperation, equity holdings in partner firms, and the number of partner firms. The partner characteristics are relative size, relative performance, and the number of global alliances entered. The contextual characteristic we consider is cultural similarity. Specifically, we propose that the scope of cooperation, equity holdings in partner firms, and cultural similarity will have positive relationships with value creation for firms entering a global alliance, that the number of partner firms will have no association with value creation, and that all three partner characteristics will have negative relationships with value creation. …