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Cooperative ventures in emerging economies

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  • Rodri­guez, Eric
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    Abstract

    Foreign market entry strategy involves choices about which markets to enter and how to do it. Most of the literature on foreign direct investment reflects an interest in ownership structure decisions and the risks foreign investing firm may face. As recognized in many studies, one set of risks arises from public expropriation hazards, a function of the ability of the host country's institutional environment to credibly commit to a given policy or regulatory regime. Empirical research has shown this hazard to have an impact on ownership levels. This study is a theoretical model that describes how multinational firms face moral hazard risk from their local partners and political risk from the host country when they decide to go abroad in a joint-venture alliance. I found that the greater the level of hazard expropriation, the lower the participation of the multinational firm in the final cash flow, except for when the multinational firm has the negotiation power and there is a high level of local investment protectionism. In that case, the multinational firm increases its participation in the final cash flow.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 61 (2008)
    Issue (Month): 6 (June)
    Pages: 640-647

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    Handle: RePEc:eee:jbrese:v:61:y:2008:i:6:p:640-647

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    Web page: http://www.elsevier.com/locate/jbusres

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    1. Teece, David J, 1977. "Technology Transfer by Multinational Firms: The Resource Cost of Transferring Technological Know-how," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 87(346), pages 242-61, June.
    2. Bruce Kogut & Harbir Singh, 1988. "The Effect of National Culture on the Choice of Entry Mode," Journal of International Business Studies, Palgrave Macmillan, vol. 19(3), pages 411-432, September.
    3. Oxley, Joanne E., 1999. "Institutional environment and the mechanisms of governance: the impact of intellectual property protection on the structure of inter-firm alliances," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 38(3), pages 283-309, March.
    4. Oxley, Joanne E, 1997. "Appropriability Hazards and Governance in Strategic Alliances: A Transaction Cost Approach," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 13(2), pages 387-409, October.
    5. Henisz Witold J. & Williamson Oliver E., 1999. "Comparative Economic Organization—Within and Between Countries," Business and Politics, De Gruyter, vol. 1(3), pages 261-278, December.
    6. Tarun Khanna & Krishna Palepu, 2000. "Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups," Journal of Finance, American Finance Association, American Finance Association, vol. 55(2), pages 867-891, 04.
    7. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan, vol. 17(3), pages 1-26, September.
    8. Kobrin, Stephen J., 1980. "Foreign enterprise and forced divestment in LDCs," International Organization, Cambridge University Press, Cambridge University Press, vol. 34(01), pages 65-88, December.
    9. Schnitzer, Monika, 1997. "Debt vs. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1608, C.E.P.R. Discussion Papers.
    10. Gatignon, Hubert & Anderson, Erin, 1988. "The Multinational Corporation's Degree of Control over Foreign Subsidiaries: An Empirical Test of a Transaction Cost Explanation," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 4(2), pages 305-36, Fall.
    11. Thomas H. Noe & Michael J. Rebello & Milind M. Shrikhande, 2002. "Structuring International Cooperative Ventures," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(4), pages 1251-1282.
    12. Henisz, Witold J, 2000. "The Institutional Environment for Multinational Investment," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 16(2), pages 334-64, October.
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