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Myopic capital market concerns and investment incentives in business alliances

Author

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  • Hui Chen

    (University of Zurich)

  • Thomas Pfeiffer

    (University of Vienna)

Abstract

We study a publicly traded firm that cares about its short-term stock market performance while collaborating with a privately owned firm in a business alliance. The firms each undertake a relation-specific investment and then bargain over the allocation of the joint surplus generated by the alliance. The public firm’s myopic market concerns affect both the total size of the surplus and how the firms divide the surplus. While the public firm always becomes more aggressive and obtains more of the surplus, the total size of the surplus may become larger or smaller, due to the effect of myopic market concerns on the firms’ investment incentives. We establish conditions under which the investment and the value of each firm increase or decrease with market concerns. The market concerns could mitigate or exacerbate the hold-up problem between the two firms and thus could either benefit or harm the whole business alliance. We also study two extensions with (i) the two investments being substitutes instead of complements and (ii) both firms being publicly listed. In both cases, the insights from our main model still hold.

Suggested Citation

  • Hui Chen & Thomas Pfeiffer, 2024. "Myopic capital market concerns and investment incentives in business alliances," Review of Accounting Studies, Springer, vol. 29(3), pages 2518-2550, September.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:3:d:10.1007_s11142-023-09755-y
    DOI: 10.1007/s11142-023-09755-y
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    More about this item

    Keywords

    Business alliance; Capital market concerns; Holdup problem; Investment spillover; Myopic behavior; Specific investment; Supply chain;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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