The stock market reaction to joint venture announcements : an empirical study of companies listed on Nordic stock exchanges

Abstract

This thesis examines how the stock market reacts to joint venture announcements by firms listed on Nordic stock exchanges. We performed an event study on a sample of 988 joint venture announcements by 280 firms from January 1, 1995 to December 31, 2017. The primary objective was to determine whether joint venture announcements have a significant impact on the market valuation of the announcing firms. In addition, we attempted to identify determinants of the stock market response. The analysis showed a cumulative average abnormal return of 0.88% in a three-day event window surrounding the joint venture announcements. This finding is significant at the 1% level, which is a strong indication that joint venture announcements have a positive effect on the market valuation of Nordic firms. The results are robust to the choice of normal performance model, event window and significance test. The average increase in shareholder wealth associated with joint venture announcements is approximately $20.0 million, while the median increase is $1.2 million. Even though there are differences between the Nordic region and the US, our findings seem to be consistent with the notion that Nordic firms experience similar market valuation effects as firms in the US. The cross-sectional analysis showed that relatively smaller partners, ceteris paribus, experienced an increase in the cumulative abnormal return of 2.43 percentage points. This supports the notion that relatively smaller partners are able to extract more value from a joint venture than the relatively larger partners. We found no evidence supporting the hypothesis that there is a relationship between experience and the cumulative abnormal return. Furthermore, neither the business relatedness between the partners nor the business relatedness between the partner and joint venture have an effect on the cumulative abnormal return. However, firm size, joint venture type, number of partners and the time period seem to impact the joint venture performance.