The Wealth Effect of International Joint Ventures: The Case of U.S. Investment in China

Haiyang Chen, Michael Y. Hu and Joseph C. P. Shieh

Financial Management, 1991, vol. 20, issue 4

Abstract: This study provides direct evidence of the wealth effect of international joint venture announcements on the value of U.S. firms investing in China from 1979 to 1990. Using a sample of 88 announcements, we find statistically significant positive portfolio excess returns at the joint venture announcements. The results lend strong support to the positive-multinational-network hypothesis, which predicts that a firm's value increases when it expands into global markets. Further, shareholders of U.S. firms investing a relatively small amount in the joint ventures gain positive excess returns, while shareholders of those investing a relatively large amount earn insignificant excess returns. The implication is that the wealth gain arises primarily from the value of a collection of real options acquired by the U.S. firms through their investments in China.

Date: 1991
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