National Culture and Governance on Bondholder Wealth: Evidence from Joint Ventures and Strategic Alliances around the World

Abstract

This paper examines bondholder wealth effects in global business collaborations with the form of cross-border joint ventures (JVs) and strategic alliances (SAs). Based on a sample of 1,898 event-firms from 2009 to 2015, we find significant and positive abnormal returns for bondholders. On average, bondholder value increases 14.4 basis points in a 3-month observation window. We find that country-level governance and national culture are dominant drivers of bondholder wealth effects. More specifically, bondholders benefit more from JVs and SAs if they are from countries with poorer institutional governance or greater regulatory governance in creditor protection (higher creditor rights and lower shareholder rights). In addition, bondholders gain more when they are from countries characterized with greater individualism, less power distance, a higher level of trust, or larger culture distance. Robustness tests and subsample analyses confirm the main findings. We find a positive impact of JVs and SAs on stockholder wealth, but little evidence for wealth transfer between stockholders and bondholders.