Growth opportunities, corporate governance and the market value of multinational joint ventures

Abstract

This paper examines whether differences in investment opportunities and corporate ownership structure can explain the disparate findings of other researchers with regard to the market's price reaction to the announcement of international joint ventures. We study a sample of 320 joint ventures announced during the period 1987–92. The sample joint ventures involve at least one US partner and one or more international partners from emerging economies (former communist countries in Eastern Europe and China), as well as industrialized G7 countries. We find that international joint ventures are on average wealth creating when the foreign partner comes from an emerging economy but are wealth neutral when the partner is from an industrialized country. This finding supports the investment opportunity set hypothesis. However, we do not find support for the shareholder-management alignment hypothesis in that higher insider holdings or a greater level of outsiders on the board for the US partner will lead to joint venture investments that are more highly valued by investors, other things remaining the same. © 1998 John Wiley & Sons, Ltd.