Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships


  • Jeffrey W. Allen,

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    • Allen is from the Edwin L. Cox School of Business, Southern Methodist University and Phillips is from the Robert H. Smith School of Business, University of Maryland. We wish to thank Matthew Clayton, Amar Gande, Kathleen Weiss Hanley, Robert Hanswald, David Ikenberry, Naveen Khanna, Vojislav Maksimovic, David Mauer, the editor, René Stulz, and Michael Vetsuypens for helpful comments. We also wish to thank seminar participants at Michigan State University, Southern Methodist University, the University of Michigan, the Center for Economic Studies at The Bureau of the Census, the 1999 American Finance Association meetings, the eighth Annual Conference in Financial Economics and Accounting, the 1999 Texas Finance Conference, and the 1998 Western Finance Association meetings for helpful comments and discussions. Allen gratefully acknowledges the SMU Finance Institute for financial support.
  • Gordon M. Phillips


This paper examines long-term block ownership by corporations and performance changes in firms with corporate block owners. We also examine potential reasons for corporate ownership including benefits in product market relationships, alleviation of financing constraints, and board monitoring by corporate owners. We find the largest significant increases in targets' stock prices, investment, and operating profitability when ownership is combined with alliances, joint ventures, and other product market relationships between purchasing and target firms, especially in industries with high research and development. Our findings are consistent with the conclusion that block ownership by corporations has significant benefits in product market relationships.