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Joint ventures between US MNCs and foreign governments

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Author Info

  • Mina Glambosky
  • Kim Gleason
  • Joan Wiggenhorn
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    Abstract

    Purpose – The purpose of this paper is to determine the initial stock price reaction and long-run returns for joint venture announcements between US MNCs and foreign governments as well as the firm characteristics and political risk factors of the foreign governments that affect the abnormal returns. In addition we determine changes in total and systematic risk following the joint venture. Design/methodology/approach – Announcement abnormal returns are calculated using event study cumulative abnormal returns. Long-run returns use a buy and hold methodology. Cross section regressions are performed on both the announcement and long run returns. Findings – Announcement abnormal returns are a positive 0.37 percent; however, the long-run returns are a significant -3.99 percent the end of the first year. Both short-run and long-run returns are higher when the level of internal conflict is low, and surprisingly when the level of corruption is high. Also, surprisingly, short-run returns are higher when ethnic violence is higher, but, as expected, long-run returns are higher when there is higher democratic stability. Research limitations/implications – One implication is that when US managers are confronted by foreign government corruption, there may be a conflict between the success of the project and the ethical/legal requirements of the company. Originality/value – The paper focuses on joint ventures with foreign governments rather than the usual foreign companies. Also, unlike previous papers that have used only one measure of political risk, this paper uses five of the PRS categories of political risk.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal International Journal of Managerial Finance.

    Volume (Year): 7 (2011)
    Issue (Month): 3 (June)
    Pages: 238-258

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    Handle: RePEc:eme:ijmfpp:v:7:y:2011:i:3:p:238-258

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Event study; International business; Internationalization; Joint ventures; Multinational companies; Political risk; Risk analysis;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Pierre-Xavier Meschi, 2009. "Government corruption and foreign stakes in international joint ventures in emerging economies," Asia Pacific Journal of Management, Springer, vol. 26(2), pages 241-261, June.
    2. Keith D Brouthers & Gary J Bamossy, 1997. "The Role of Key Stakeholders in the International Joint Venture Negotiations: Case Studies from Eastern Europe," Journal of International Business Studies, Palgrave Macmillan, vol. 28(2), pages 285-308, June.
    3. Beata S. Javorcik & Shang-Jin Wei, 2009. "Corruption and Cross-Border Investment in Emerging Markets: Firm-Level Evidence," Working Papers 062009, Hong Kong Institute for Monetary Research.
    4. Rodolphe Desbordes, 2010. "Global And Diplomatic Political Risks And Foreign Direct Investment," Economics and Politics, Wiley Blackwell, vol. 22(1), pages 92-125, 03.
    5. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
    6. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
    7. Yigang Pan & Xiaolian Li, 2000. "Joint Ventures Formation of Very Large Multinational Firms," Journal of International Business Studies, Palgrave Macmillan, vol. 31(1), pages 179-189, March.
    8. Morck, R. & Yeung, B., 1991. "Why Investors Value Multinationality," Working Papers 282, Research Seminar in International Economics, University of Michigan.
    9. Shang-Jin Wei, 1997. "How Taxing is Corruption on International Investors?," William Davidson Institute Working Papers Series 63, William Davidson Institute at the University of Michigan.
    10. McConnell, John J & Nantell, Timothy J, 1985. " Corporate Combinations and Common Stock Returns: The Case of Joint Ventures," Journal of Finance, American Finance Association, vol. 40(2), pages 519-36, June.
    11. Weijian Shan, 1991. "Environmental Risks and Joint Venture Sharing Arrangements," Journal of International Business Studies, Palgrave Macmillan, vol. 22(4), pages 555-578, December.
    12. Donna L Paul & Rossitza B Wooster, 2008. "Strategic investments by US firms in transition economies," Journal of International Business Studies, Palgrave Macmillan, vol. 39(2), pages 249-266, March.
    13. J Michael Geringer & Louis Hebert, 1989. "Control and Performance of International Joint Ventures," Journal of International Business Studies, Palgrave Macmillan, vol. 20(2), pages 235-254, June.
    14. Chuck C Y Kwok & Solomon Tadesse, 2006. "The MNC as an agent of change for host-country institutions: FDI and corruption," Journal of International Business Studies, Palgrave Macmillan, vol. 37(6), pages 767-785, November.
    15. repec:fth:michin:282 is not listed on IDEAS
    16. Rockwood, Alan, 1983. "The Impact of Joint Ventures on the Market for OCS Oil and Gas Leases," Journal of Industrial Economics, Wiley Blackwell, vol. 31(4), pages 453-68, June.
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