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Ownership and control in joint ventures: theory and evidence

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Author Info
HEGE, Ulrich
HAUSWALD, Robert (R.H. Smith School of Business, University of Maryland)

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Abstract

Joint 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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Publisher Info
Paper provided by HEC Paris in its series Les Cahiers de Recherche with number 750.

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Length: 41 pages
Date of creation: 01 Mar 2002
Date of revision:
Handle: RePEc:ebg:heccah:0750

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Related research
Keywords: joint ventures; partnerships; ownership; asset complementarity; buyout options;

Other versions of this item:

Find related papers by JEL classification:
D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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References listed on IDEAS
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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    Other versions:
  3. Luigi Zingales, 2000. "In Search of New Foundations," NBER Working Papers 7706, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    Other versions:
  12. Jeffrey W. Allen & Gordon M. Phillips, 2000. "Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships," Journal of Finance, American Finance Association, vol. 55(6), pages 2791-2815, December. [Downloadable!] (restricted)
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    Other versions:
  17. Darrough, Masako N & Stoughton, Neal M, 1989. "A Bargaining Approach to Profit Sharing in Joint Ventures," Journal of Business, University of Chicago Press, vol. 62(2), pages 237-70, April. [Downloadable!] (restricted)
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  20. Campbell, Elise & Reuer, Jeffrey J., 2001. "International alliance negotiations: legal issues for general managers," Business Horizons, Elsevier, vol. 44(1), pages 19-26. [Downloadable!] (restricted)
  21. 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. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, 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.)

  1. Berglof, Erik & Claessens, Stijn, 2004. "Enforcement and Corporate Governance," Policy Research Working Paper Series 3409, The World Bank. [Downloadable!]
  2. Maria Angeles de Frutos & Thomas Kittsteiner, 2004. "Efficient partnership dissolution under buy/sell clauses," Bonn Econ Discussion Papers bgse1_2004, University of Bonn, Germany, revised Jul 2004. [Downloadable!]
    Other versions:
  3. James Andreoni, 2007. "Social Image and the 50-50 Norm: A Theoretical and Experimental Analysis of Audience Effects," Levine's Bibliography 122247000000001459, UCLA Department of Economics. [Downloadable!]
  4. Carolin Häussler, 2004. "Does Partnering Pay Off? - Stock Market Reactions to Inter-Firm Collaboration Announcements in Germany," Discussion Papers 14, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
  5. Chemla, Gilles & Habib, Michel Antoine & Ljungqvist, Alexander P, 2002. "An Analysis of Shareholder Agreements," CEPR Discussion Papers 3457, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Jianpei Li & Elmar Wolfstetter, 2004. "Partnership Dissolution, Complementarity, and Investment Incentives," Discussion Papers 12, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  7. Jiahua Che & Giovanni Facchini, 2009. "Cultural differences, insecure property rights and the mode of entry decision," Economic Theory, Springer, vol. 38(3), pages 465-484, March. [Downloadable!] (restricted)
    Other versions:
  8. McCahery, J.A. & Vermeulen, E.P.M., 2003. "The evolution of closely held business forms in Europe," Discussion Paper 12, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
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