Do joint ventures and strategic alliances create value for bondholders?

This paper investigates whether joint ventures and strategic alliances create value for bondholders by examining the bond market's reaction to announcements of these two types of cooperative business activities. Based on 2964 announcements from 1985 to 2011, we find that joint ventures and strategic alliances create significant value for bondholders. The average two-month abnormal bond return is 0.64% for joint ventures and 0.70% for strategic alliances. We find no evidence of a wealth transfer between the bondholders and stockholders. We further explore the determinants of bond value creation through hypotheses on the synergy effect, the alleviation of financial constraints, and real options. The results of our study show that financial synergy is a main driver of bondholder wealth effects in joint ventures, while operating synergy is a dominant factor in strategic alliances. We also find evidence to support the real option hypothesis for both events. Finally, we show that the structure of bond contracts plays an important role in the link between synergy and abnormal bond returns.