Ownership and control in joint ventures: theory and evidence

Ulrich Hege and Robert Hauswald
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Robert Hauswald: R.H. Smith School of Business, University of Maryland

No 750, HEC Research Papers Series from HEC Paris

Abstract: Joint ventures, a particularly popular form of corporate cooperation, exhibit ownership patterns that are clustered around equal shareholdings for a wide variety of parent firms. In this paper, we investigate why 50-50 or "50 plus one share" equity allocations should be so prevalent. In our model, parent firms trade off control benefits and costs with incentives for resource contributions in the presence of asset complementarities. We show that strict resource complementarity eliminates moral hazard in parent contributions so that ownership provides sufficient incentives for optimal investments. However, the potential for extraction of residual control benefits by the majority owner creates a discontinuity in contribution incentives at 50% equity stakes that explains the optimal clustering of ownership around 50-50 shareholdings. Using data from 1,248 US joint ventures announced between 1985 and 2000, we empirically analyze the determinants of their ownership allocations and conduct tests of model predictions that offer strong support for our theory.

Keywords: joint ventures; partnerships; ownership; asset complementarity; buyout options (search for similar items in EconPapers)
JEL-codes: D23 G32 L14 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2002-03-01
New Economics Papers: this item is included in nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Ownership and Control in Joint Ventures: Theory and Evidence (2011)
Working Paper: Ownership and Control in Joint Ventures: Theory and Evidence (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:0750

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