Ownership and control in joint ventures: theory and evidence
AbstractJoint ventures, a particularly popular form of corporate cooperation, exhibit ownership patterns that are clustered around equal shareholdings for a wide variety of parent firms. In this paper, we investigate why 50-50 or "50 plus one share" equity allocations should be so prevalent. In our model, parent firms trade off control benefits and costs with incentives for resource contributions in the presence of asset complementarities. We show that strict resource complementarity eliminates moral hazard in parent contributions so that ownership provides sufficient incentives for optimal investments. However, the potential for extraction of residual control benefits by the majority owner creates a discontinuity in contribution incentives at 50% equity stakes that explains the optimal clustering of ownership around 50-50 shareholdings. Using data from 1,248 US joint ventures announced between 1985 and 2000, we empirically analyze the determinants of their ownership allocations and conduct tests of model predictions that offer strong support for our theory.
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Bibliographic InfoPaper provided by HEC Paris in its series Les Cahiers de Recherche with number 750.
Length: 41 pages
Date of creation: 01 Mar 2002
Date of revision:
joint ventures; partnerships; ownership; asset complementarity; buyout options;
Other versions of this item:
- Hauswald, Robert & Hege, Ulrich, 2003. "Ownership and Control in Joint Ventures: Theory and Evidence," CEPR Discussion Papers 4056, C.E.P.R. Discussion Papers.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-12-02 (All new papers)
- NEP-CFN-2002-12-02 (Corporate Finance)
- NEP-RMG-2002-12-02 (Risk Management)
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