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Transactional characteristics, institutional environment and joint venture contracts

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  • Yadong Luo

    (Department of Management, School of Business Administration, University of Miami, Coral Gables, FL, USA)

Abstract

This study examines how transactional characteristics and the institutional environment influence contractual governance for international joint ventures (IJVs). Unlike previous studies that view joint venture contractual governance as a unidimensional construct (clause specificity), thus causing a debate upon whether IJV contracts should be more specific, contractual governance herein is defined as a three-dimensional construct that includes the extent to which contractual terms are clearly specified (term specificity), possible contingencies are accounted for (contingency adaptability), and joint venture parties are legally bound to the contract (contractual obligatoriness). Our analysis of IJVs in China suggests that term specificity and contractual obligatoriness increase when the proprietariness of resources to be invested in the IJV or the incompleteness of the host country's legal system increase. Contractual obligatoriness appears to be an increasing function of economic exposure and environmental volatility, whereas contingency adaptability in a contract rises when interparty dependency, investment uncertainty, and knowledge proprietariness intensify or when environmental hazards escalate. These results suggest that an IJV contract, if structured multidimensionally as above, can curtail opportunism and guide venture evolution at the same time. These contractual dimensions should not be prefixed but properly aligned with transactional and institutional characteristics. This alignment has strong implications in reducing transaction costs and spurring IJV evolution in the complex and volatile institutional environment. Journal of International Business Studies (2005) 36, 209–230. doi:10.1057/palgrave.jibs.8400125

Suggested Citation

  • Yadong Luo, 2005. "Transactional characteristics, institutional environment and joint venture contracts," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 36(2), pages 209-230, March.
  • Handle: RePEc:pal:jintbs:v:36:y:2005:i:2:p:209-230
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    References listed on IDEAS

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    2. Panayides, Photis M. & Parola, Francesco & Lam, Jasmine Siu Lee, 2015. "The effect of institutional factors on public–private partnership success in ports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 71(C), pages 110-127.
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    4. Ortiz-de-Urbina-Criado, Marta & Montoro-Sánchez, Ángeles & Mora-Valentín, Eva-María, 2014. "Impact of growth strategy on mode of governance in alliances," International Business Review, Elsevier, vol. 23(4), pages 838-848.
    5. White, George O. & Boddewyn, Jean J. & Galang, Roberto Martin N., 2015. "Legal system contingencies as determinants of political tie intensity by wholly owned foreign subsidiaries: Insights from the Philippines," Journal of World Business, Elsevier, vol. 50(2), pages 342-356.
    6. Andrei Panibratov & Alexander Abramkov, 2012. "Joint Venture Strategy For Emerging Economy: Evidence From Russian Energy Sector," Organizations and Markets in Emerging Economies, Faculty of Economics, Vilnius University, vol. 3(2).
    7. Slangen, Arjen H.L. & van Tulder, Rob J.M., 2009. "Cultural distance, political risk, or governance quality? Towards a more accurate conceptualization and measurement of external uncertainty in foreign entry mode research," International Business Review, Elsevier, vol. 18(3), pages 276-291, June.
    8. repec:spr:manint:v:52:y:2012:i:6:d:10.1007_s11575-011-0123-y is not listed on IDEAS
    9. Leonidou, Leonidas C. & Aykol, Bilge & Fotiadis, Thomas A. & Christodoulides, Paul & Zeriti, Athina, 2017. "Betrayal in international buyer-seller relationships: Its drivers and performance implications," Journal of World Business, Elsevier, vol. 52(1), pages 28-44.
    10. White, George O. & Hemphill, Thomas A. & Joplin, Janice R.W. & Marsh, Laurence A., 2014. "Wholly owned foreign subsidiary relation-based strategies in volatile environments," International Business Review, Elsevier, vol. 23(1), pages 303-312.
    11. Africa Ariño & Roberto Ragozzino & Jeffrey J. Reuer, 2008. "Alliance Dynamics for Entrepreneurial Firms," Journal of Management Studies, Wiley Blackwell, vol. 45(1), pages 147-168, January.
    12. Han, I & Liang, Hsin-Yu & Chan, Kam C., 2016. "Locational concentration and institutional diversification: Evidence from foreign direct investments in the banking industry," The North American Journal of Economics and Finance, Elsevier, vol. 38(C), pages 185-199.
    13. repec:eee:jbrese:v:76:y:2017:i:c:p:98-107 is not listed on IDEAS
    14. Tseng, Chiung-Hui & Lee, Ruby P., 2010. "Host environmental uncertainty and equity-based entry mode dilemma: The role of market linking capability," International Business Review, Elsevier, vol. 19(4), pages 407-418, August.
    15. Lui, Steven S. & Wong, Yin-yee & Liu, Weiping, 2009. "Asset specificity roles in interfirm cooperation: Reducing opportunistic behavior or increasing cooperative behavior?," Journal of Business Research, Elsevier, vol. 62(11), pages 1214-1219, November.
    16. Griffith, David A., 2010. "Understanding multi-level institutional convergence effects on international market segments and global marketing strategy," Journal of World Business, Elsevier, vol. 45(1), pages 59-67, January.
    17. Eriksson, Kent & Fjeldstad, Øystein & Jonsson, Sara, 2017. "Transaction services and SME internationalization: The effect of home and host country bank relationships on international investment and growth," International Business Review, Elsevier, vol. 26(1), pages 130-144.
    18. Lin, Xiaohua & Wang, Cheng Lu, 2008. "Enforcement and performance: The role of ownership, legalism and trust in international joint ventures," Journal of World Business, Elsevier, vol. 43(3), pages 340-351, July.
    19. White, George O. & Hadjimarcou, John & Fainshmidt, Stav & Posthuma, Richard A., 2013. "MNE home country cultural norms and conflict strategy fit in transnational business contract disputes," International Business Review, Elsevier, vol. 22(3), pages 554-567.
    20. Hong, Sungjin J. & Lee, Seung-Hyun, 2015. "Reducing cultural uncertainty through experience gained in the domestic market," Journal of World Business, Elsevier, vol. 50(3), pages 428-438.
    21. Fainshmidt, Stav & White, George O. & Cangioni, Carole, 2014. "Legal Distance, Cognitive Distance, and Conflict Resolution in International Business Intellectual Property Disputes," Journal of International Management, Elsevier, vol. 20(2), pages 188-200.
    22. Wang, Cheng Lu & Shi, Yizheng & Barnes, Bradley R., 2015. "The role of satisfaction, trust and contractual obligation on long-term orientation," Journal of Business Research, Elsevier, vol. 68(3), pages 473-479.
    23. Cuypers, I.R.P., 2009. "Essays on equity joint ventures, uncertainty and experience," Other publications TiSEM 8dc79e86-c625-467f-a450-8, Tilburg University, School of Economics and Management.
    24. Hamid Beladi & Sugata Marjit & Avik Chakrabarti, "undated". "Tariff Jumping and Joint Ventures," Working Papers 0002, College of Business, University of Texas at San Antonio.
    25. repec:spr:manint:v:48:y:2008:i:1:d:10.1007_s11575-008-0005-0 is not listed on IDEAS

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