Effect of international marketing alliance dissolution on the shareholder's value of emerging market partner firm

Abstract

As part of their global growth strategy, multinational corporations headquartered in developed markets (DMs) are increasingly entering emerging markets (EMs) such as India and China by forming international marketing joint ventures (IMJVs) with firms headquartered in emerging markets. However, about half of these IMJVs are dissolved within five years. This study examines the impact of IMJV dissolution announcements on the short-term abnormal returns to the EM firm. Guided by real options view, the authors develop a conceptual framework and formulate a set of hypotheses on the main and moderating effects of the drivers of short-term abnormal returns to dissolution announcement. They test the hypotheses using a uniquely compiled multisource dataset on IMJV dissolutions in India during 2001-2016. They also study the impact of factors such as product emphasis, service emphasis, equity emphasis, and the sentiments as reflected in the dissolution announcements using natural language processing (NLP). The results reveal several new insights. Somewhat counter-intuitively, dissolution announcements create positive abnormal returns for the EM firm. Interestingly, EM firms experience negative abnormal returns when they decide to acquire the IMJV after dissolution. However, this relationship is positively moderated by the IMJV’s pre-dissolution financial performance, the EM firm’s equity share in the IMJV, and the EM firm’s alliance experience. We outline the important managerial implications of the results.