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Stockholder benefits from Japanese-U.S. joint ventures.

This paper examines the stock price reactions for Japanese and American companies that announce joint ventures across the Japan-United States border. The joint venture is one of the several possible corporate restructuring transactions. Chief among its particular characteristics are that it is a temporary combination between two corporations and that its size is usually well below the value of either of its partners. Moreover, the joint venture is not typically associated with the kind of management displacement that characterizes other types of corporate restructuring such as mergers and tender offers (see Bradley, Desai and Kim [3], and Jensen and Ruback [10]). Indeed, joint ventures are cooperative transactions between venturing corporations, What Weston, Chung and Hoag call "strategic alliances" [18,p. 332]. McConnell and Nantell [13] document that joint ventures between U.S. partners produce synergistic gains; Lummer and Mcconnell [11] report that U.S. partners realize synergistic gains when they enter into international joint ventures. We examine 146 joint ventures between Japanese companies and U.S. companies over the 1979-1987 period. We also document that shareholders of U.S. partners realized significant gains when the joint ventures is announced. This study differs from previous studies in that it shows that shareholders of the foreign joint venture partner, particularly of Japanese companies, also experience gains from international joint ventures.

We document that the U.S. partner's percentage gain from the joint venture is inversely related to that partner's size. This is similar to the "size effect" reported by McConnell and Nantell [13] for domestic U.S. joint ventures and by Asquith, Bruner and Mullins [1] for domestic U.S. mergers. However, we also find evidence that the opposite relationship exist for Japanese partners. In particular, we report that relatively larger Japanese joint venture partners experience larger percentage gains than do relatively smaller Japanese partners. While this result differs from that document for U.S. joint venture and merger partners, it is similar to Pettway and Yamada's [15] finding that the larger partner in mergers between Japanese companies experiences larger percentage gains. Taken together, these results show that, on average, shareholder gains from Japanese-U.S. joint ventures tend to be larger for both partners when the Japanese company is the larger partner.

While the international joint venture can have value for reasons common to the domestic joint venture, such as technology transfer and the realization of production synergies, it may produce additional benefits because it crosses national borders. Consistent with this, we also document that our Japanese-U.S. joint ventures produce greater benefits when the joint venture partners' domestic currency is relatively strong. We suggest that this relative currency strength effect is evidence that Japanese-U.S. joint ventures facilitated the overcoming of restrictions on flows of goods and services across the Japan-U.S. border. Though trade laws between the two countries have been eliminated since the late 70's, the operation of a Japanese- or U.S.-based company in the foreign country still involves confronting of possible cultural differences, lack of knowledge of distribution systems, and other such restrictions that can reduce the flow of good and services. For example, foreign companies operating in Japan face the opposition of powerful industrial groups, keiretsu (see Carter, et al [5], Goldenberg [8], and Pettway and Yamanda [15]), whose cooperation may be needed to overcome obstacles to domestic suppliers, buyers and labor. Similarly, Japanese entrants into U.S. markets also face trade obstacles. Japanese companies must comply with voluntary quotas and they must also contend with a public perception which is not favorable. (1) Indeed, public outcry against some Japanese companies caused them to withdraw their plans to invest in the U.S. (2) Thus, an entrant into their Japanese or U.S. market, unless it has a strong comparative advantage, may find that the joint venture allows the overcoming of cross-border restrictions more easily than expanding into a foreign country alone, even in the absence of restrictive trade laws.

When international markets work perfectly, exchange rate changes are immediately impounded into across-border price differentials. The finding that relative currency strength is an important determinant of across-border joint venture gains is consistent with the conclusion that across-border price differentials do not always immediately reflect exchange rate changes. This suggest that these Japanese-U.S. joint ventures produce a benefit from improving the international flow of goods and services. Consequently, these across-border joint ventures can be seen as contributing to the reduction of business risk and, therefore, reducing the unsystematic risk of international portfolios. In this way, our results can be viewed as evidence consistent with the conclusion that these joint ventures produced international diversification benefits for investors. (3)

Our regression results indicate that other factors which eluded our analysis may contribute to explaining the gains to these joint ventures. Moreover, our results indicate that many of the joint ventures do not produce gains to shareholders. Therefore, this study also suggests that further analysis of international joint ventures is needed before we have a complete understanding of their impact on shareholders' wealth.

We first discuss the sample of Japanese-U.S. joint ventures. The method for computing excess returns for Japanese and U.S. firms is then discussed, and we document the gains to both partners of the joint venture. We then examine the possible determinants of these gains. The paper concludes with summary remarks.

I. The international joint venture

Sample

To obtain the sample of Japanese-U.S. joint ventures, the Dow Jones News Retrieval Service (DJNRS) was carefully screened for any announcements of joint ventures between Japanese and U.S. companies over the period beginning June 1, 1979, and ending JUne 30, 1987. Many, but not all, of the events were also reported in the Wall Street Journal (WSJ) the day after they were first

[TABULAR DATA OMITTED]

reported on the DJNRS. Thus, the DJNRS reports the events as they occur, so that price reactions attributable to any of the reported events occur either the day of, or the day DJNRS report.

The initial sample of news reports for the sample period was obtained by recovering all DJNRS news reports containing the words "joint venture" and the word "Japan". This selection procedure produced a sample of 625 news articles. Each of these articles was then read to identify reports of joint ventures between Japanese and U.S. companies. Of the reports, 241 discussed a joint venture between a Japanese and U. S. company. Of these, 60 were eliminated because the U.S. company was not listed on the CRSP tape. An additional 35 articles were eliminated, because they either pertained to a previously announced joint venture, or they related to an expansion of an existing joint venture. The resulting sample contains 146 Japanese-U.S. joint ventures.

The joint venture sample is reported in Exhibit 1. More than half of the joint ventures occurred during the latter half of the nine-year sample period, with 1985-1986 being the two-year period having the greatest joint venture activity. Almost all of the joint ventures have one Japanese-based partner and one U.S.-based partner. However, four of the joint ventures have two Japanese-based partners and one U.S.-based partner; four other joint ventures have three Japanese partners and one U.S. partner; and one joint venture involving AT&T has 18 Japanese partners. In those joint ventures having more than one Japanese partner, the Japanese partners' returns, assets, and market values are grouped into an equally weighed portfolio to form a single Japanese partner to the joint venture.

Two-thirds of the joint ventures were reportedly located exclusively in either Japan or the U.S., with 43 in Japan and 46 in the U.S. An additional 22 joint ventures were located in both countries. A dozen of the joint ventures were located in the third countries and 23 of the DJNRS reports indicate no clear location for the joint venture. (4) For 97 joint ventures, it was possible to identify where the product of the joint venture will be sold--we call this the "product market." In eight cases, the product market was in both countries, and for more than two-thirds of the remaining 82 joint ventures, the product market was in Japan. Only seven joint ventures specified a third country for their product market, and about one-third of all the joint venture announcements do not specify or report the product market. (5)

Two measures of company size are reported in Exhibit 1. The first is book value of total assets as of the year ending immediately prior to the announcement of the joint venture (in normal U.S. dollars). For Japanese partners, the total book value of assets is collected from Moody's International Manual, or the Japan Company Handbook. (6) For U.S. partners, the total book value of total assets is obtained from the COMPUSTAT tapes or Moody's Industrial Manual. THe average asset size of the U.S. companies, $12.74 billion, is 2.55 times bigger than the average assets size for the Japanese partners, and the median asset size for the U.S. partner, $2.81 billion, 1.37 times the median Japanese partner size. Measured by the market value of common stock as of 31 days prior to the announcement of the joint venture, the U.S. partners' common stock is worth $7.02 billion, while the average market value of common stock for the Japanese partners is smaller at $2.09 billion. Thus, in terms of book value of assets or market value of common stocks, the U.S. partners are clearly larger than the Japanese partners.

II. Measuring the Benefits of Joint

Ventures

Common stockholders' benefits from joint ventures are measured by the percentage abnormal price reaction to the first public announcement of the joint venture. To the extent that investors have not already anticipated the announcement, the abnormal price reaction to the announcement will reflect the investors' expected marginal valuation of their company's share of the net present value of the joint venture. Thus this abnormal price reaction also reflects the investors' assessment of the probable success or failure of the joint venture.

A. Japanese Partners

To measure the price effects of the joint ventures on stockholders of the Japanese partners, closing prices from the beginning to the end of the week of the joint venture announcement, collected from the Japan Economic Journal (JEJ), are used. (7) Weekly closing price data are available for 94 of the Japanese partners. Because weekly returns are used to assess the price effects on the Japanese partner's common stock, market-adjusted weekly excess return is examined for these companies. Under the market-adjusted method, the weekly rate of return realized on the Tokyo Stock Exchange (TSE) during the company's announcement week, denoted [R.sub.M](W) is used as a proxy for the company's weekly expected rate of return. (8) Thus, the week w average excess return for the Japanese partners is computed as [Mathematical Expression Omitted] where [R.sub.k](O) is the announcement week rate of return on company k's common stock.

B. U.S. Partners

Abnormal price effects of the joint ventures on stockholders of the U.S. partners in measured using the market model, as outlined in the appendix. The cumulative daily excess return earned by U.S. joint venture partners, beginning on relative day b and ending on relative day e, is denoted CER(b,e).

III. Analysis of the Joint Venture

Benefits

A. The Price Effects for all Joint Ventures

Panel A of Exhibit 2 reports the average weekly excess return to shareholders of both Japanese and U.S. partners to the joint ventures in the week of joint venture announcement. These data show that the Japanese partner shareholders realize a significantly positive average excess returning the announcement week of 1.08%. The weekly excess return to shareholders of U.S. partners is a
 Exhibit 2. Average Announcement Week Excess Return
for Japanese Partners, ER(O), and U.S. Partners,
CER(-2,+2), and Average Daily Excess
Returns for U.S. Partners, CER(b,e)
 Panel A. Announcement Week Excess Returns
 Announcement
 Week Excess Percent
 Return Observation Positive
Japanese partners 1.08 (*) 94 56
 (1.80)
U.S. partners 1.05 (***) 146 53
 (2.50)
 Panel B. Daily Cumulative Excess Returns of U.S.
 Partners
 Percent
 CER(b,e) Observations Positive
CER(-30,-1) 0.26 146 51.3
CER(0,+1) 0.99 (***) 146 56.7
CER(+2,+3) -0.26 146 50.0
 Note; T-statistics in parentheses;
 (*) p-value [is less than or equal to] 0.10,
 (***) p-value [is less than or equal to] 0.01.


statistically significant 1.05%. These results show that, on average, shareholders of each of the partner companies in Japanese-U.S. joint ventures benefit significantly from the joint venture undertaking. However. Panel A also shows that only in slightly more than half the joint ventures did stockholders earn positive excess returns. Consistent with this, the median weekly excess return for Japanese partners is 0.28%, and for U.S. partners it is 0.21%. Thus, while excess returns are significantly positive, on average, the results also show that many of the joint ventures did not result significant gains to shareholders.

The results are consistent with the findings of McConnell and Nantell [13], and Lummer and McConnell [11]. McConnell and Nantell [13] examined 136 joint ventures between U.S. companies during 1972-1979. They find two-day announcement average excess returns of 0.73% for common stockholders of these joint venture partners, with 67% of the joint venturing partners experiencing positive excess returns. Lummer and McConnell [11] examine 416 international joint ventures over 1971 to 1980, between U.S. companies and foreign companies and foreign governments in 55 different countries. They report that stockholders of the 324 U.S. partners of joint ventures with foreign companies earn an average abnormal announcement return of 0.40% with 49% of the U.S. partners experiencing positive excess returns.

Panel B of Exhibit 2 reports the mean daily cumulative excess returns for the U.S. partners during the 30 days immediately before and after the announcement of the joint venture, and during the two-day announcement period. The two day announcement period excess return of 0.99% is significantly positive. As these excess returns show, U.S. partners do not experience significant excess returns during the trading periods immediately prior to and following the joint venture announcement.

The excess returns for the joint venture partners were also examined, conditional on whether the joint venture announcement was also reported in the WSJ. For Japanese partners, the average excess returns for those joint ventures reported in the WSJ was 0.89% (n=35) and for those not reported in the WSJ the mean excess return was 0.95% (n=59). For the U.S. partners, the average excess returns are 1.25%(n=62)for those reported in the WSJ and 0.81% (n=84)for those unreported joint ventures. Thus, we conclude that there is no obvious difference in excess returns, conditional on weather the joint venture is reported in the WSJ.

Further perspectives on the valuation effects of Japanese-U.S. joint ventures can be obtained from examination of dollar value of the joint venture to the shareholders implied by the market's reaction to the joint venture announcements. To compute the dollar value estimate, the announcement period excess returns are multiplied by the market value of the partner's common stock as of 31 days prior to the announcement day. The resulting median dollar gain to U.S. shareholders is $30.7 million and the median gain to the Japanese firms is $2.8 million. This average gain to U.S. stockholders is six times larger than the $4.8 million average benefit so shareholders of joint ventures between U.S. partners reported by mcconnell and Nantell [13].

B. Joint Venture Location

In exhibit 3, the excess returns are classified by joint venture location and the location of the joint venture product markets. The results indicate that the Japanese partners' excess returns are not significantly affected by the location of the joint venture or the location of the joint venture's product market. The U.S. partners do well, regardless of where the joint venture is located, and their gains higher when their product market is not in the U.S. (9) N particular pattern is revealed, and as we show below, none of the results are significant in our multiple regression model.
 Exhibit 3. Average Announcement Week Excess Return
for Japanese Partners, ER(0), and Average
Two-Day Announcement Excess Return for
U.S. Partners, CER(0,+1), by Country Location
of the Joint Venture and the Location of
the Joint Venture Product Market
 Panel A. Country Location of Joint Venture
 Japanese Partners U.S. Partners
Location ER(0) Observations CER(0,+1) Observations
Japan 0.72 27 1.05*** 43
 (0.84) (2.56)
United 0.21 35 0.95* 46
States (0.35) (1.69)
Other 2.32 32 0.55 57
 (1.57) (1.34)
 Panel B. Country Location of Joint Venture Product Market
 Japanese Partners U.S. Partners
Location ER(0) Observations CER(0,+1) Observations
Japan 1.03 38 0.86** 55
 (1.47) (2.11)
United -0.86 18 0.22 27
States (-0.93) (0.57)
Other 2.03 38 1.04** 64
 (1.65) (2.22)
Note: t-statistics in parentheses; * p-value
[is less than or equal to] 0.10, ** p-value
[is less than or equal to] 0.05,
*** p-value [is less than or equal to] 0.01.


C. Joint Venture Partner Relative Size

Prior studies of corporate restructuring within the United States suggest that shareholders of relatively large participants in restructuring transactions earn relatively small percentage returns, on average (see, Asquith, Bruner and Mullins [1], and McConnell and Nantell [13]). To test this relative size hypothesis for Japanese-U.S. joint ventures, the relative size of the partners to the joint venture transaction is measured by the ratio of one partner's market value of stock to the market value of the other partner's stock. Thus, if the ratio is below (above) one, the joint venture is categorized as small (large). In the absence of

[TABULAR DATA OMITTED]

data on the market value of equity for either partner, the joint venture partners are of unknown relative size.

Exhibit 4 reports the excess returns to shareholders of the respective partners by the small-large relative size categorization. The data indicate that U.S. partners are usually larger than their Japanese partners. For the U.S. partners, the evidence in Exhibit 4 supports the relative size hypothesis: the excess returns are larger for U.S. firms that are smaller than their joint venture partner. For Japanese partners, the opposite result is observed. Nevertheless, the average dollar market value of the gain to shareholders of the 60 larger U.S. partners ($42.3 million) is greater than for the 33 smaller U.S. partners ($17.7 million).

One unexpected result under the relative size hypothesis is that not only did the small Japanese partners earn lower percentage returns than did the large Japanese partners, but the data of Exhibit 4 also suggest that these shareholders realized insignificant benefits from the joint venture. While these results are inconsistent with the U.S. experience (see McConnell and Nantell [13]), they are consistent with Pettway and Yamada's [14] evidence that larger partners of Japanese mergers earn larger excess returns than smaller partners. Overall, the results of Exhibit 4 show that when the Japanese partner of the joint venture is large, and when the U.S. partner is small, stockholders earn large and significantly positive excess returns

[TABULAR DATA OMITTED]

D. The Partner's Home Currency Strength

Excess returns may also be related to the strength of the joint venture partner's domestic currency. When imperfections in the flow of goods across national borders are present, the joint venture may provide a vehicle for taking advantage of cost and revenue differentials induced by changing exchange rates. For example, suppose a joint venture partner's domestic currency has become relatively strong. Then, in the absence of perfect markets for goods and services, gains to its shareholders can arise if finished goods and services are purchased by the foreign joint venture partner, or their production is located across the border through an international joint venture. In this way, the domestic cost of the goods or services on the foreign country experiencing the devalued currency are kept low, while the value of those goods or services increases, due to the increased strength of the home partner's currency.

To test the currency strength hypothesis, the Yen/Dollar (yen/dollar) exchange rate of the month of each joint venture announcement is first ranked from lowest to highest and sorted into two groups: Yen/Dollar low, and Yen/Dollar [high.sup.10]. The excess returns to shareholders of the respective partners are then examined for the two Yen/Dollar groups. The currency strength hypothesis suggests that shareholders' gains should be high for Japanese-based partners when the Yen/Dollar is high, and that they should be high for the U.S.-based partners when the Yen/Dollar is low. Exhibit 5 reports the results which support the currency strength hypothesis.

E. Multiple Regression Results

We examine the joint impact of several combinations of the above determinants on the excess returns using the following ordinary least squares regression model,

[Mathematical Expression Omitted]

j=1,...,240. (2)

In Equation (2), [ER.sub.j] denotes the excess return of the jth partner firm, U.S. or Japanese, and [E.sub.j] is the error term. The two dummy variables are

HOMESTR= 1 if the Yen/Dollar is low (high) for the U.S. (Japanese) partner j, and 0 otherwise; USLIT = 1 if the U.S. partner is smaller than the Japanese partner.

Equation (2) also contains a cross product of the two dummy variables. (11) Estimated parameters from Equation (2) will therefore reveal whether the previously reported relative size effects and the currency strength effects are separate. The result of the regression is reported in Column I of Exhibit 6. It shows that both dummy variables are significant.

When U.S. partners are smaller than Japanese partners, the joint venture partners earn an additional excess return of 1.32%, and when the home currency is strong, the joint venture partner's excess return is 1.64%. When the U.S. partner is small and currency is strong, the partner's excess return is 1.50%.

To examine if the joint venture location or the product market location have an independent effect on the excess return, we estimated four versions of the following regression

[Mathematical Expression Omitted]

j=1,...,240, (3)

[TABULAR DATA OMITTED]

where in each version, X is one of the following four zero-one dummy variables,

JPNMKT = 1 if the joint venture was located in Japan, USMKT = 1 if the joint venture was located in U.S., JPNCO = 1 if the product market was in Japan, and USCO = 1 if the product market was in the U.S.

When these four additional regressions are estimated, the effects on the excess returns of the location and product markets are never significant. Thus, to economize on space, we do not report these additional 16 parameter estimates. However, we do report the new parameter estimates for [beta[sub.1]], [beta[sub.2]] and [beta[sub.3]], for each of these four additional regressions. The results are reported in Columns II through V of Exhibit 6. What these results show is that the currency strength effect and the small U.S. partner effect continue to be significant. Thus, while these two effects are apparently being reflected in the market results reported in Exhibit 3, they are robust and do not have offsetting interaction effects.

IV. Summary

This study documents that, on average, U.S. and Japanese shareholders benefit when their companies announce their intentions to form international joint ventures. The average percentage gain in stock price is about 1% at the announcement. However, we also report that roughly half of the joint ventures do not realize significant abnormal returns. Regarding the source of the gains to shareholders from these joint ventures, the evidence presented here suggests that U.S. shareholders earn larger excess returns when their firms are smaller than the Japanese partner. The evidence also shows that shareholder gains in these joint ventures are larger when the home currency is relatively strong, which we interpret as providing evidence that overcoming restrictions on cross-border flows of goods and services may be a motive for international joint ventures.

(1) For example, a recent Wall Street Journal survey reported that 69% of the respondents thought there was too much Japanese investment within the United States (see Wall Street Journal, June 19, 1990, "'Selling of America' To Japanese Touches Some Very Raw Nerves").

(2) For further analyses of corporate restructuring, especially across-border, see Doukas and Travlos [6], and Mathur and Hanagan [12].

(3) Studies show that stockholders can benefit from international diversification of the firm (for example, see Mathur and Hanagan (12), and Harris and Ravenscraft [9]). However, Lummer and McConnell [13] suggest that the benefits they document to international joint ventures, which they report are lower for less correlated economies, are more likely due to political risk of unrelated countries and not due to international diversification benefits.

(4) If the joint venture product is a service, the production location is coded as unknown.

(5) For example: "Du Pont Co. and Mitsubishi Rayon signed a letter of intent for a joint venture in Japan for production and marketing of Du Pont's Corian building products." (WSJ, February 3, 1985). This joint venture has Japan for both its production and target market location.

(6) When the Japanese company's total assets are reported in yen, they are converted into dollars using the exchange rate appropriate to the joint venture announcement date.

(7) While daily closing price data exist in machine readable form for companies listed on the Tokyo Stock Exchange, these data are not yet readily available in the U.S. and are quite costly; weekly closing prices for the Japanese partners were collected by hand. Thus, these weekly returns are measured as the difference between the announcement week's Friday closing price less the prior week's closing price, as a percentage of the prior week's closing price.

(8) This method is employed because we were unable to collect sufficient weekly returns to form a comparison period from which market model parameters could be estimated. This method assumes beta is 1, and Brown and Warner [4] show that results using this method do not differ significantly from the results obtained using the market model.

(9) While the returns of Japan versus U.S. appear different, we are unable to reject the null hypothesis of a significant difference at the 10% level.

(10) During the sample period the Yen/Dollar exchange ratio ranged from a low of 141 to a high of 271, with a mean of 243 and a median of 225.

(11) Not reported in Equation (2) is the fact that a third dummy variable is included that equals 1 when both of the above dummy variables equal 0. We do not report this dummy variable parameter because it is not significant. Thus Equation (2) is estimated with a mutually exhaustive set of dummy variables so we do not estimate an intercept term to avoid the "dummy variable trap."

References

[1] P. Asquith, R.F. Bruner, and D.W. Mullins, "Merger, Bids, Uncertainty and Stockholder Returns," Journal of Financial Economics (April 1983), pp. 51-84.

[2] A.M. Benvignati, "Domestic Profit Advantages of Multinational Firms," Journal of Business (July 1987), pp. 449-461.

[3] M. Bradley, A. Desai and H. Kim, "Synergistic Gains from Corporate Acquisitions and Their Division Between Stockholders of Target and Acquiring Firms," Journal of Financial Economics (May 1988), pp. 3-40.

[4] S.J. Brown and J.B. Warner, "Using Daily Stock Returns: The Case of Event Studies," Journal of Financial Economics (March 1985), pp. 3-31.

[5] J.D. Carter, R.F. Cushman and C.S. Hartz, The Handbook of Joint Venturing, Dow Jones-Irwin, Homewood, Illinois, 1989.

[6] J. Doukas and N.G. Travlos, "The Effect of Corporate Multinationalism on Shareholders Wealth: Evidence from International Acquisitions," Journal of Finance (December 1988), pp. 1161-1175.

[7] A. Fatemi, "Shareholder Benefits from Corporate International Diversification," Journal of Finance (December 1984, pp. 1325-1344.

[8] S. Goldenberg, Hands Across the Ocean: Managing Joint Ventures with a Spotlight on China and Japan, Harvard Business School Press, Boston, Massachusetts, 1989.

[9] R.S. Harris and D. Ravenscraft, "The Role of Acquisitions in Foreign Direct Investment: Evidence From the U.S. Stock Market," Journal of Finance (July 1991), pp. 825-844.

[10] M. Jensen and R.S. Ruback, "The Market for Corporate Control: The Scientific Evidence," Journal of Financial Economics (April 1983), pp. 5-50.

[11] S.L. Lummer and J.J. McConnell, "Stock Valuation Effects of International Joint Ventures," in Pacific-Basin Capital Markets Research, S.G. Rhee and R.P. Chang (eds.), Elsevier Science Publishers B.V., North-Holland, 1990.

[12] I. Mathur and K. Hanagan, "Are Multinational Corporations Superior Investment Vehicles for Achieving International Diversification?," Journal of International Business Studies (Winter 1983), pp. 135-146.

[13] J. McConnell and T. Nantell, "Corporate Combinations and Common Stock Returns: The Case of Joint Ventures," Journal of Finance (June 1985), pp. 519-536.

[14] A. Michel and I Shaked, "Japanese Leverage: Myth or Reality," Financial Analysts Journal (July-August 1985), pp. 61-67.

[15] R. Pettway and T. Yamada, "Mergers in Japan and their Impacts upon Shareholders' Wealth," Financial Management (Winter 1986), pp. 43-52.

[16] R. Reich and E. Mankin, "Japan Joint Ventures Give Away our Future," Harvard Business Review (March-April 1986), pp. 78-86.

[17] R. Stulz, "On the Effects of Barriers to International Investment," Journal of Finance (September 1981), pp. 923-934.

[18] J.F. Weston, K.S. Chung, and S.E. Hoag, Mergers, Restructuring, and Corporate Control, Prentice Hall, Englewood Cliffs, NJ, 1990.

Appendix

The daily closing prices from the University of Chicago's CRSP (Center for Research in Security Prices) tapes are used, which were available for all 146 U.S. partners. Let d denote the day relative to company i's first announcement of the joint venture, where the date is d=0.

The expected rate of return, E[[R.sub.i](d)], is calculated using market model parameters estimated during the 100-day comparison period beginning 130 trading days before and ending 31 days before the joint venture announcement date. For each company, daily excess returns are then computed according to E[[R.sub.i](d)]; [ER.sub.i](d) = [R.sub.i](d) - E[[R.sub.i](d)] for the 61 trading-day period beginning 30 trading days before and ending 31 days after the first announcement day. For each of these 61 days, an equally weighted average daily excess return for relative day d, denoted ER(d), is computed. The cumulative daily excess return earned by U.S. joint venture partners, beginning on day b and ending on day e, CER(b,e), is measured as

[Mathematical Expression Omitted]

Claire Crutchley is at the Department of Finance, Auburn University, Auburn, Alabama. Enyang Guo is at the Department of Business Administration, Millersville University, Millersville, Pennsylvania. Robert S. Hansen is at the Department of Finance, Virginia Polytechnic Institute and State University, Blacksburg, Virginia.
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Title Annotation:International Finance Special Issue; includes appendix
Author:Crutchley, Claire E.; Guo, Enyang; Hansen, Robert S.
Publication:Financial Management
Date:Dec 22, 1991
Words:5215
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