Determinants of Decision Rights in International Joint Ventures The Role of Intangible Knowledge Assets and Uncertainty

Abstract

This paper explores the determinants of decision rights allocation in international joint ventures (IJVs) by developing a theoretical framework based on the property rights and transaction cost explanations. We posit that the allocation of residual decision rights is influenced by the distribution of intangible knowledge assets important for the generation of residual income and by the environmental uncertainty. Based on the property rights theory, we show that the less contractible strategic knowledge assets have a stronger impact on the assignment of residual control rights to the JV partners than the more contractible operational knowledge assets. Under transaction cost economics perspective we focus on three environmental determinants: institutional uncertainty, cultural distance, and market uncertainty. We argue that the higher the environmental uncertainty in the host country, the more residual decision rights should be allocated to the local partner. Empirical data from IJVs in the CEE provide support of the hypotheses.