A Rexamination of the Motives and Gains in Joint Ventures

Shane Johnson and Mark B. Houston

Journal of Financial and Quantitative Analysis, 2000, vol. 35, issue 1, 67-85

Abstract: We distinguish between horizontal and vertical joint ventures, and find correspondingly different valuation effects. Horizontal joint ventures create synergistic gains that are shared by the partners. In contrast, vertical joint ventures generate gains only for suppliers. This is similar to the patter we find for simple contracts, which suggests economic similiarities between vertical joint ventures and contracts. Analysing firms' choices between these contracting options, we find that firms choose vertical joint ventures over simple contracts when potential hold-up problems are severe and when suppliers face finance constraints. The results d not support a risk-sharing motive for joint ventures.

Date: 2000
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