Alliance Partner Reputation as a Signal to the Market: Evidence from Bank Loan Alliances

While significant effort has been devoted by scholars to understanding the informational impact of reputation (firm- and brand-level) on performance, scant attention has been given to the informational effects on a firm of the reputations of partners within an alliance — even less to the financial implications of those effects. Reviewing the extant literature, the author specifies that a partner's reputation is an informational signal that reduces information asymmetries in the market, and predicts that alliance partner reputation will be positively related to changes in a firm's market value at the time of alliance announcement. This hypothesis is tested using event study methodology that isolates the movement in a firm's stock price that can be attributed to an event. Multiple regression is then used to investigate the relationship between partner reputation and stock price reactions, finding the predicted positive relationship. © 2003, Palgrave Macmillan.