| Explaining the Incidence of Unrelated Joint-Ventures: Efficiency and Agency Approaches |
| | Piskorski, Mikolaj Jan | Harvard U. | mpiskorski@hbs.edu | (617) 495-1470 |
| | Recent literatures on cooperative strategies and corporate diversification have paid relatively little attention to joint-ventures unrelated to either parent's business. Yet, concrete examples of such activity abound. The failure to recognize that firms enter into unrelated businesses through joint ventures has two implications. First, the focus on horizontal and vertical joint-ventures without concern for those that are unrelated reduces our understanding of the cooperative strategies of large corporations. Second, unique attention to acquisitions as the key method of unrelated diversification, without regard for unrelated joint-ventures, diminishes our understanding of unrelated diversification strategies. Despite the importance of the phenomenon in shaping both the cooperative and diversification strategies of large corporations, there is no literature proposing to explain why and under what conditions firms enter into unrelated joint-ventures.
Our paper starts to address this issue by comparing and contrasting two theories. Drawing on the extant joint-venture literature I argue that unrelated joint-ventures may represent efficient and value maximizing unrelated diversification strategies (Hennart, 1988; Kogut, 1988). In contrast to this view, the model I derive from agency literature presents unrelated joint-ventures as second-best, non-value maximizing choices designed to further organizational survival and managerial interests. I adjudicate between these two models by examining the unrelated diversification strategies of the largest American corporations in the period between 1979 and 1992. In the concluding part I offer a discussion of the implications of the findings of this research for our understanding of the recent changes in cooperative and diversification strategies of the largest corporations in the US.
|
| | Keywords: Joint-Ventures; Corporate Diversification |
| Looking at the Back End: A Transaction Cost Analysis of Joint Venture Terminations |
| | Kaufmann, Jeffrey B. | U. of Illinois, Urbana-Champaign | jkaufmnn@uiuc.edu | (507) 280-6741 |
| | O'Neill, Hugh M. | U. of North Carolina, Chapel Hill | hugh_oneill@unc.edu | (919) 962-3164 |
| | Changes in regulatory policy during the 1980's resulted in an explosion of joint venture activity.
Early research into this phenomenon focused on the benefits and optimal structure of these
alliances. The termination of these ventures, on the other hand, has received less attention in
the literature. This is in spite of studies that have reported relatively high rates of termination.
Many of the studies that have discussed the termination phenomenon have done so through a
transaction cost economics lens. These scholars have proposed various factors that should
influence the termination of a joint venture. Subsequent studies have found relationships
between these prescriptions, the founding conditions faced by the partners, and the governance
structure of the alliance. The current study extends this research by looking at the actual efficacy
of these factors for influencing the status and/or duration of a joint venture.
Results from a study of joint ventures formed between 1985 and 1989 support many of the
proposed effects of non-recoverable assets, behavioral transparency, shared management,
and extra-transactional dealings. However the significance and importance of these factors
often differed between the two models (i.e., status and duration). Neither comprehensive private
ordering nor cultural distance was found significant in the multivariate analysis. The paper
concludes with a discussion of the implications and limitations of these findings for our
understanding of the termination phenomenon.
|
| | Keywords: termination; joint ventures; transaction cost economics |
| Joint Venture Terminations: Causes and Consequences |
| | Kumar, Shyam | U. of Illinois, Urbana-Champaign | mkumar@uiuc.edu | (217)-328-7783 |
| | Prevailing notions largely attribute the high termination rate of joint ventures to their shared governance structures and their inherent potential for partner conflicts. Less recognized is the fact that joint ventures are, to an extent, self-liquidating strategies where fulfillment of objectives may obviate the need for continuing the venture. In addition joint ventures, like any other business, are vulnerable to risks. Some venture terminations may therefore occur simply as a response to these risks rather than due to partner conflicts. The purpose of this paper is to provide theory and evidence in favor of the argument that joint venture terminations legitimately take place under a variety of circumstances. Based on a review of the literature, we identify these circumstances and suggest a framework that links them to alternative modes of termination. Our thesis is that successful ventures, rather than being liquidated, are more likely to terminate in an acquisition by one of the partners. Consequently, such venture terminations should enhance the value of the firm acquiring the venture. We then test this hypothesis using an event study approach and find that, in general, firms terminating a venture by acquiring it from a partner, experience positive stock returns. |
| | Keywords: Joint ventures- terminations; Joint ventures- acquisitions; Joint ventures- event studies |
| Solving the Collaborative Dilemma of Joint Ventures: The Role of Structural Conditions |
| | Zeng, Ming | INSEAD / European Institute of Business Administration | ming.zeng@insead.fr | 33 1 60724032 |
| | The paper investigates how partners can solve the collaborative dilemma of joint ventures. This dilemma occurs because it is in the self-interest of each partner to increase its respective gains from a joint venture through an increase in its share of joint venture profits and/or through the use of partners' inputs outside the joint venture, while these very same actions often damage the cooperation between partners, and result in inefficiency, and even premature termination of the venture.
Drawing from transaction cost and game theories, this study further argues that proper joint venture structuring plays a crucial role in solving this collaborative dilemma. For example, the use of mutual hostages between partners can create a self-enforcing mechanism that not only enhances joint value creation but also reduces the transaction costs associated with specialized investments. Using a blackbox approach to partner interface can also reduce the potential for unintended spillover.
Using the information collected through a survey about 45 Japanese-American joint ventures in the US, I tested the impact of various structural factors on partner cooperation in joint ventures. The use of mutual hostages and tighter control of one's own contribution to the joint venture led to higher cooperation between partners, while the difficulties of evaluating partners' performance and the differences in partners' organizational cultures/management styles led to lower cooperation.
|
| | Keywords: Joint Venture Management; Transaction cost & game theory |