I examine why there are differences in wealth gains between firms when they announce a joint venture (JV). Building on transaction cost economics and the resource-based view, I argue that, because JVs often involve incomplete contracts, differences in wealth gains arise due to resource appropriation and private benefits. As a result, two factors become important in understanding whether a firm earns higher/lower wealth gains than its partner: (1) its potential for earning private benefits and (2) its ability to extract private benefits. As a test of the impact of the first factor, I propose that when a JV is formed, the partner that possesses more valuable resources is likely to earn lower wealth gains whereas the partner that possesses less valuable resources is likely to earn higher wealth gains because its potential for earning private benefits over the course of the venture is also higher. I then argue that the partner with less valuable resources is likely to extract higher private benefits and gain more when it has greater bargaining power and absorptive capacity. Conversely, the partner with more valuable resources is likely to protect itself better from appropriation when it has JV capabilities. I find support for these arguments in a sample of 344 ventures. The implications are that private benefits significantly influence value creation in JVs, and that a broad array of contingencies and factors affect these benefits which need to be considered when entering into a cooperation.
