Unmixed signals: stock market reaction to subsequent announcements of strategic alliances

In contrast to initial announcements, subsequent announcements of strategic alliances are more effective signals transferring more specific and credible progress information to investors. However, no comprehensive analysis of information updates on alliance progress activities exists. We address this limitation by distinguishing the signalling effects between initial and subsequent disclosures of strategic alliances. Using event study, the signalling effect is measured by cumulative abnormal returns with alliance data from China during 2001 and 2016. We find that investors react positively and significantly to both initial and subsequent disclosures, but in different reaction patterns. Specifically, due to information leakage effects, the stock market reacts negatively to subsequent reports from day -5 to -3 and then, reacts positively both in an immediate term (on day 0) and over the subsequent event window with fluctuations. Additionally, the stock market significantly rewards alliance performance announcements, but responds negatively to progress and termination reports. This study contributes to the strategic alliance literature and helps managers in making information disclosure strategies.