Article ID: | iaor2002131 |
Country: | United States |
Volume: | 9 |
Issue: | 3 |
Start Page Number: | 382 |
End Page Number: | 395 |
Publication Date: | May 1998 |
Journal: | Organization Science |
Authors: | Hennart Jean-Franois, Kim Dong-Jae, Zeng Ming |
Keywords: | statistics: regression |
A number of well-known studies report that between one-third and two-thirds of international joint ventures eventually break up. While many generalizations, explanations, and prescriptions have been based on these statistics, their meaning is unclear. First, all foreign affiliates are subject to normal business risk, and to the risk that they will be divested by parents for strategic or financial reasons. Are these risks higher for joint ventures than for wholly-owned subsidiaries? Second, joint ventures may be shorter lived not because of their joint venture status, but because affiliates which are joint ventured have other characteristics that make them more likely to exit. To know whether joint ventures are shorter lived, one must control for the other factors that affect the longevity of affiliates, whether wholly-owned or joint ventured. Third, many joint ventures contracts contain clauses that allow partners to sell their stakes to one another at specific intervals. Because they make exit easier, joint ventures should have shorter lives, but these shorter lives should only be due to selloffs, not to liquidations. Is is therefore important to see whether the supposedly higher termination rate of joint ventures stakes is due to a higher rate of selloffs or to a higher rate of liquidation.