The potential for expropriation through joint ventures

Spencer A. Case, D. Scott Lee and John D. Martin

Review of Financial Economics, 2007, vol. 16, issue 1, 111-126

Abstract: We examine the potential expropriation of a firm's intellectual capital that results from joint venture agreements when a firm's joint venture partner becomes the target of an acquisition attempt. We find that: (1) non‐targeted joint venture partners often suffer losses in value upon the announcement of the acquisition; (2) the magnitude of the loss increases with the R&D intensity of the non‐targeted joint venture partner; and (3) average bidder returns are less negative for acquirers if the affected joint venture partners report R&D spending and are in the same line of business as the acquirer. Our estimate of the average loss is $843 million per firm, roughly 3% of the non‐targeted firm's pre‐announcement equity value. Our evidence suggests a previously unrecognized merger motive in that joint ventures expose a firm's intellectual capital to the risk of expropriation.

Date: 2007
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https://doi.org/10.1016/j.rfe.2006.07.003

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Persistent link: https://EconPapers.repec.org/RePEc:wly:revfec:v:16:y:2007:i:1:p:111-126

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