This study examines the impact of an acquisition announcement on the market reaction to an acquirer's alliance partner. From a transaction cost perspective, we argue that the market valuation of an alliance partner around an acquisition announcement is negative because the stock market recognizes that an acquisition causes an unanticipated increase in the uncertainty of the acquirer's behavior, thereby decreasing the expected value from the alliance. Additionally, the negative impact of an acquisition announcement depends on the alliance and acquisition characteristics, which determine the degree of the unanticipated increase in the acquirer's behavioral uncertainty. Using an event study of 347 alliances associated with 150 acquisitions of Japanese public non-financial firms, we find that an acquirer's acquisition announcement triggers a negative market valuation of its alliance partner. Moreover, past alliance experience reduces the negative impact of an acquisition announcement, while non-horizontal alliance type and acquisition deal value enhance the negative impact.
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