• Organizational Form, Board Structure, and the Wealth Effect of Strategic Alliances

Abstract

Organization form and board structure of a firm may not only have the impact on the resource utilization but also influence the investment decisions. Literature addresses little about that. Hence, this study is aimed to examine how the different organization form and board structure influence firm’s stock performance of strategic alliances. The results show that the average stock price response is significantly positive for both alliances initiated by focused firms as well as by diversified firms. We find both same-industry and different-industry alliances have significantly positive impacts on stock price performance of diversified firms. However, the positive stock price performance of focused firms that make the announcement is mainly from same-industry alliances. In addition, the board structure of a firm which announces the strategic alliance influences the wealth effect of shareholders significantly. Our empirical results indicate that the announced firm will have significant positive stock responses when the board has characteristics with higher ratio of independent directors, higher percentage of outside directors, and the chairman of the board not serving as chief executive officer. Our empirical results still hold after controlling the effect of strategic alliance within the same business group.

Keywords: Organization Form, Firm Diversification, Board Structure, Strategic Alliance