Partnering With Business Group Firms: The Effect Of Group Size On Value Creation And Distribution

Abstract

We examine international joint ventures (IJVs) between members of business groups and foreign partners. Business group firms are potentially attractive IJV partners due to their connections and access to resources. However, drawing on Resource Dependence Theory, we suggest that local firms belonging to larger business groups have less incentive to contribute to the IJV, resulting in lower value creation. In addition, we suggest that the larger the business group a local partner belongs to, the more bargaining power they have over the foreign partner, allowing them to capture more of the value that is created in the IJV. Using a sample of foreign-Korean IJVs established between 1989 and 2007, we find evidence of (1) a negative relationship between the size of the business group of the Korean partner and the value that is created in the IJVs, and (2) a positive relationship between group size and how much value the Korean partner captures.