Capital structure strategies in strategic alliances

We examine whether firms strategically adjust their capital structure to enhance their bargaining power with their alliance partners. We find that firms increase their financial leverage after forming strategic alliances. The effect of strategic alliances on firms’ capital structure is weaker for firms with high market value, state-owned firms, and firms with high earnings volatility, whereas stronger for firms in more competitive industries and firms with better corporate governance. Compared to non-equity (contractual) strategic alliances, the effect is weaker in equity strategic alliances. Furthermore, we find that high leverage helps alliance firms reduce their costs and enhance firm value.