Valuation of Inter-firm Relationships in the Telecommunications Industry: Typology and Market Responses

This paper discusses a typology and evaluations of inter-firm relationships in the telecommunications industry. The authors define inter-firm relationships as a broad range of relationships including strategic alliances, joint ventures, and mergers and acquisitions (M&A) or other equity-based relationships. Forming relationships and selecting partners are the two most important issues for managers when arranging inter-firm relationships and these are also important subjects for research in this area. The authors empirically analyzed inter-firm relationships by evaluating short-term stock-market responses to announcements about the formation of such relationships. These evaluations follow typologies previously proposed by the authors, which are explained in this paper. Three hypotheses are proposed and examined regarding general market responses and the difference in responses between each defined type of relationship and market. The results from evaluations revealed that market responses were generally not favorable in the short term in contrast to general understanding of market responses. However, the authors found significant differences in responses between the relationship categories of the framework. Practical implementations were obtained where managers in the industry had to take into account how the stock market responded to the formation of inter-firm relationships when they developed their corporate strategies. The results also demonstrated the validity of the proposed framework and suggested it should be useful to enable further analysis of this industry.