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Dual And Common Agency Issues In International Joint Ventures: Evidence From China

Author

Listed:
  • YI ZHANG

    (Jinhe Center for Economic Research, Xi'an Jiaotong University, No. 28 Xianning West Road, Xi'an, Shaanxi, 710049, China)

  • HEIN ROELFSEMA

    (Utrecht University School of Economics, Utrecht University, Kriekenpitplein 21–22, 3584 EC Utrecht, The Netherlands)

Abstract

With the help of a theoretical model, we analyze the relation between rent sharing in an international equity joint venture (EJV) and local public goods provision. In our setting, the local government faces a commitment problem to provide public servicesex postto the set-up of the firm. We show that, to overcome such a dual agency problem, the multinational enterprise leaves more rents to the local partner than in the first-best to provide stronger incentives for local public investment. We test the trade-off between local public goods and ownership shares across Chinese provinces to find support for our mechanism.

Suggested Citation

  • Yi Zhang & Hein Roelfsema, 2013. "Dual And Common Agency Issues In International Joint Ventures: Evidence From China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(03), pages 1-25.
    • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:03:n:s0217590813500203
    DOI: 10.1142/S0217590813500203
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    References listed on IDEAS

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    1. Emanuel Ornelas & John L. Turner, 2012. "Protection and International Sourcing," Economic Journal, Royal Economic Society, vol. 122(559), pages 26-63, March.
    2. Matthew Cole & Robert Elliott & Jing Zhang, 2009. "Corruption, Governance and FDI Location in China: A Province-Level Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 45(9), pages 1494-1512.
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    Cited by:

    1. Yi Zhang, 2019. "Institutions, Firm Characteristics, and FDI Spillovers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(5), pages 1109-1136, April.

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    More about this item

    Keywords

    Rent sharing; local public goods; foreign investment; China; F21; F23; L14; L22; H41;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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