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Dual and common agency issues in international joint ventures: evidence from China

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  • H.J. Roelfsema
  • Yi Zhang

Abstract

With the help of a theoretical model we analyze the relation between equity sharing in an international joint venture (EJV) and local public goods provision in a setting where the local government faces a commitment problem to provide public services ex post to the set-up of the firm. We show that to overcome such a dual agency problem, the multinational leaves more local rents to the local partner than in the first-best, so as to provide stronger incentives for the government to supply public goods. Applying dynamic panel data estimation, we test the trade-off between local public goods and ownership shares across 31 Chinese provinces to find support for our mechanism

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File URL: http://dspace.library.uu.nl/bitstream/handle/1874/43858/10-05.pdf
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Bibliographic Info

Paper provided by Utrecht School of Economics in its series Working Papers with number 10-05.

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Length: 17 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:use:tkiwps:1005

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Keywords: Equity sharing; foreign investment; local public goods; China;

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