Venture Contracts Research Articles

Assessing risk allocation preferences of partners in international construction joint venture projects in Ghana

PurposeEquitable risk allocation is important for the effective management of inevitable risks in International Construction Joint Venture (ICJV) projects. Previous studies have documented risks facing ICJV projects. However, there is a dearth of studies on the risk allocation preferences that take into consideration the opinions of both the local and foreign partners. This study aims to fill this gap by ascertaining the risk allocation preferences of the partners of ICJV projects for effective risk management.Design/methodology/approachThrough a survey, data on risk allocation preferences were collected from both local and foreign partners of ICJV projects using a comprehensive register of 74 risks.FindingsFollowing analysis, six risks were allocated to the local partner, 11 were allocated to the foreign partner, 51 risks were shared, four were allocated to a third party and two were to be negotiated based on the specific circumstances of the project. Practically, the study’s findings will help ICJV partners in drafting their ICJV contracts to adequately allocate risks and reduce contract negotiation time considerably.Practical implicationsThe findings from this study will help partners in drafting their joint venture contract agreement and also reduce the period for contract negotiation. Knowledge of the preferred risk allocation is important in allocating risks in the contract agreement to the relevant partner for effective management.Originality/valueThis study, to the best knowledge of the authors, is one of the early studies to ascertain the risk allocation preferences of ICJV project partners in the Ghanaian construction industry – a departure from previous studies which focused on the identification and evaluation of risks. This study is also different from previous studies by considering the allocation preferences of both partners of the ICJV. The collection of data from both partners of the ICJV helped to consider their perceptions on risk allocation and evaluation, essentially leading to cross-cultural and optimal risk allocation preferences.

Drawing the fuzzy line: arbitrability of dissolution-related disputes in China

Abstract The dissolution of a Sino-foreign joint venture can lead to high-stakes disputes between the company’s shareholders, who often have pre-agreed arbitration clauses in their joint venture contract or the constitutional documents of the joint venture company. However, as the dissolution and liquidation of a company involves the termination of the company’s legal capacity and will thus have an effect in rem, whether or not (and to what extent) such a dispute is capable of being settled by a private tribunal invites controversy. This article examines the various reply letters, meeting minutes and judgements handed down by the Chinese courts in an attempt to draw the line between the power of arbitral tribunals and the power of the courts when it comes to dissolution-related disputes under Chinese law. Three sets of dichotomies are set out to provide an analytical framework on this issue: first, disputes arising during the liquidation process (arbitrable) vs disputes leading to the dissolution of a company (probably non-arbitrable); second, disputes under the corporate organizational law, particularly judicial dissolution due to company deadlock (non-arbitrable) vs disputes arising from contractual grounds for dissolution (arbitrable); and finally, disputes where the parties seek an outright order for the dissolution (non-arbitrable) vs disputes where the parties merely seek a declaration confirming their rights or an order for the performance of contractual obligations on the other party’s side (arbitrable).

The risk-adjusted performance of convertible venture contracts

The risk-adjusted performance of convertible venture contracts

Dubious Allocation of Liability in the ICC Model Joint Venture Contract

Construction joint ventures are amongst the most common instances of open joint ventures. In 2018, the International Chamber of Commerce (ICC) published a model open joint ventures contract for construction projects to provide businesses with a balanced form of the agreement, enabling them to work together as joint operators. While the model contract provides a well-structured framework to regulate the relationship between the parties, the authors of this article are of the opinion that the basis for liability among joint venture members in the ICC Model Contract is dubious, if not wholly fallacious. Although much of what we say on the issue of liability of joint venture members in this article can equally be applied to all types of open joint venture agreements, or even close joint venture contracts, our main focus in this article is to scrutinize and criticize the proposed liability clause in the ICC Model Contract.

Cultural communication style and international joint venture contract length

Purpose: Culturally bound communication styles affect the length of verbal and written messages. Legal contracts are no exception. This paper aims to explore the relationship between cultural communication style and the level of written detail in international joint venture (IJV) contracts. Using a database of actual IJV contracts, we empirically test the relationship between the parties’ cultural communication styles, cultural distance, and the textual length of contracts. We apply Edward T. Hall’s high- and low-context communication construct and find that contracts are longer when made between parties of low- and high-context cultures and shorter when both parties come from high-context cultures relative to when both parties are low context. Additionally, we find that the higher the cultural distance in terms of individualism versus collectivism between partners, the shorter the text of the contracts. The results highlight the influence of culture on contract text length and, as such, on contract negotiation and design costs. This article contributes to the culture and strategic alliance literature by going beyond the assumption that low-context culture contracts are longer and high-context culture contracts shorter by testing it empirically.

Joint Venture Contract Design: The Role of A Host Country’s Formal Institutional Environment

This study examines the role of a host country’s formal institutional environments on the design of international joint venture (IJV) contract and enhances our understanding on what types of IJV co...

The equilibrium of venture capital incentive contract: Optimization and Q-learning approaches

This paper presents an incentive contract model for allocating the income of venture projects. Venture Capital (VC), as one of the main sources of financing innovative projects, faces challenges like moral hazards, information asymmetry and interest conflicts (three agency problems). In addition to identifying the items that may affect the income of venture projects and the introduction of cost functions, we present an optimal incentive contract model from the perspective of both venture capitalists and entrepreneurs. In this model, a venture capitalist, as an active investor, provides managerial and training assistance to the entrepreneur. The results showed that the higher the initial ability of the entrepreneur, the less money the venture capitalist pays for training. Furthermore, the wealth that the contract parties can obtain if the venture contract is not accepted, is an influential factor in the contract payment function. This model has also been studied with bounded rationality hypothesis and has been implemented using the Q-learning algorithm. In addition, the results obtained from the Q-learning approach, are reasonably convergent with the Nash equilibrium.

Petroleum Exploration and Production Contracts as Regulatory Tools: The Kurdistan Region Production Sharing Contracts

The operating activities of the petroleum sector require large amounts of money and high levels of experience and technology that cannot be provided exclusively by most oil-producing countries or their public companies. Therefore, concluding a petroleum exploration and production contract is necessary to address the rights and obligations of the host State and international oil companies; while, various types of petroleum contracts have been developed to address those rights and obligations. In the Kurdistan Region, as an oil-producing region, oil and gas resources are being explored and produced by international oil companies, under production sharing contracts. This study attempts to appraise traditional and modern types of petroleum exploration and production contracts in detail, to examine the fundamental differences and similarities between them; and also to analyse the Kurdistan Region’s production sharing contracts. This research has clarified that the traditional contracts of different types of petroleum contracts are quite different, however, the modern contracts have many provisions in common. Therefore, currently, the choice of contract type might be less important than the content of particular contractual provisions. Finally, the research has clarified that the Kurdistan Region’s production sharing contracts comprise several positive provisions that have attracted a wide range of international oil companies to invest in the Kurdistan Region. Keywords : The Kurdistan Region of Iraq, The Kurdistan Regional Government, Production Sharing Contract, Concession Contract, Service Contract, Joint Venture Contract, International Oil Company, Traditional and Modern Petroleum Contracts. DOI: 10.7176/JLPG/101-17 Publication date: September 30 th 2020

Culture and the Length of Joint Venture Contracts

Culturally-bound communication styles affect the specificity of verbal and written messages. Contracts are no exception. The purpose of this paper is to explore the relationship between cultural communication style and joint venture (JV) contract length. Using a database of 470 JV contracts, we empirically test the relationship between the parties’ cultural communication styles, cultural distance and JV contract length. We apply Edward T. Hall’s high- and low- context communication construct and find that JV contracts are longer when made between parties of low and high context cultures and shorter when both parties come from high context cultures. Additionally, we find the higher the cultural distance in terms of individualism vs. collectivism between partners, the shorter the contracts. These results highlight the influence of culture on contractual length and, as such, upon contract negotiation and design costs. This paper contributes to the culture and alliance literatures by moving beyond the assumption that low-context culture contracts are longer and high-context culture contracts shorter by actually testing it empirically. In addition, the paper focuses on the interaction of high- and low-context cultures, which to the best of our knowledge has not been done before, in producing shorter or longer contracts, as well as how cultural distance affects contract length.

Exploring the U.S. Securities and Exchange Commission’s Edgar database by sampling joint venture contracts

Exploring the U.S. Securities and Exchange Commission’s Edgar database by sampling joint venture contracts

Institutional differences and arbitration mechanisms in international joint ventures

Abstract Research summaryWe theoretically and empirically study the effects of legal institutions on the inclusion of arbitration provisions in international joint venture (IJV) contracts. Legal institutions offer a public trilateral forum to handle interpartner disputes. However, these institutions function differently across countries, which can impede IJV partners from resolving disputes effectively through court systems. Alternatively, partners can take advantage of private trilateral resolution mechanisms in the form of arbitration. We argue and demonstrate that differences among partners' home country legal institutions regarding the legal traditions, as well as the importance of procedures and costs imposed in these countries for enforcing contracts, increase the likelihood of choosing arbitration over litigation. We also compare results for partners' recourse to IJV boards as a private, bilateral means of addressing conflicts. Managerial summaryIJVs are powerful levers for market expansion and access to resources and capabilities. The risks of corrosive disputes caused by conflicting interests or misunderstandings among partners are nonetheless far from being negligible. Our study helps decision makers and managers increase their understanding of the options and remedies available for resolving disputes. We consider three mechanisms in particular: public courts, arbitration, and the board of directors. Findings show that considering the partners' home country legal environments but also the discrepancies between these environments is essential when it comes to giving preference to arbitration over public courts. Findings also suggest that decisions related to internal private ordering (i.e., relying on the JV board of directors) are driven by the exchange characteristics more than by institutional considerations.

Administration and Claims Documentation System for Non Integrated Joint Venture Contract

The development of technology in modern times requires contractors especially in Indonesia to compete and adjust their capabilities with foreign contractors whose technology has been developed rapidly. One of the efforts is to establish a joint venture company. Construction project has various risk that influence the relationship between the engaging party and might trigger conflict. In order to avoid it, it is necessary to develop administrative and claim documentation system. A case study is used to obtain this research aim and analyze factors that dominate the project claims. Therefore, unavoidable risk can be managed in this type of contract.

Dual moral hazard and adverse selection in South African agribusiness: it takes two to tango

The paper employs a dual moral hazard and adverse selection model to analyse partnerships in agribusiness under joint venture contracts with asymmetric information and imperfect quality measurement by the agent and principal both of which contribute to the final quality of the product in terms of production effort and marketing (offtake) effort, respectively. A salient feature of this paper is the analysis of the ramifications of joint venture contract for quantity and quality, which is often deficient in most previous analyses of moral hazard. The research found that contracts that have rewards based on the quantity produced weakened the agent’s incentive to make effort in ensuring quality. This finding could explain why most contracts in agriculture for products with differentiated markets rarely use retail-price conditioned contracts.

International construction joint ventures between Singapore and developing countries

PurposeThe purposes of this paper is twofold: first, to assess the risks associated with the international construction joint ventures (ICJVs) between Singapore and developing countries and second, to investigate the risk allocation preferences in these ICJVs.Design/methodology/approachA questionnaire survey was conducted and responses were received from 38 firms that had participated in ICJVs with developing countries. A risk criticality (RC) index was adopted to evaluate the criticality of each risk.FindingsThe survey results reported “political instability” as the most critical risk and market-level risks were less critical than country and project-level risks. Additionally, the results showed agreement on the risk ranking between building and infrastructure ICJVs, despite significant differences in the criticalities of five risks. Furthermore, five risks were preferably allocated to host and foreign partners, respectively, while 13 risks could be shared among partners.Research limitations/implicationsFirst, due to the sample size, one should be cautious when interpreting and generalizing the results. Second, the RC index proposed in this study was subjective as it was influenced by the individual experience and risk attitude of the respondents. Also, the RC values were calculated without considering the weights of the respondents. Lastly, the questionnaire survey, which has been widely used in identifying risk allocation preferences, may not identify the insights of practitioners into the risk allocation practices.Practical implicationsThis study provides a clear understanding of the risks associated with forming ICJVs with developing countries and the preferred risk allocation. Although, this study is focused on the risks faced by the Singapore-developing country ICJVs, the identification of the potential risks allows companies from other countries to customize their risk profile and assess the risks before they form ICJVs with developing countries.Originality/valueAs few studies have explored the risk allocation preferences in ICJVs, this study expands the literature and provides practitioners with important information for preparing joint venture contracts or agreements. Thus, this study can contribute to the literature relating to ICJVs.

Innovative entrepreneurship in aspect of sustainable socio-economical development of the republic of Kazakhstan

The article is devoted to topical problems of small business development in the world production practice. The main tendencies of development of small business in modern conditions are noted, in particular, the directions of development of innovation-oriented small business are considered on the example of the Republic of Kazakhstan. Domestic and foreign experience has proved that supporting small businesses from the state is an integral part of the market economy. Small business, gaining a solid position in the market, needs development and state regulation. In foreign countries, small and medium-sized businesses represent an important sphere of employment for the population, promotes the development of the innovative potential of the economy, and the search for and introduction of innovations that are a factor in obtaining competitive advantages for enterprises, industries, regions. To realize its potential, state support should be carried out simultaneously in several directions, which will enable it to cover all small business sectors: the sphere of real production through the subcontracting mechanism, the sphere of circulation through the franchising mechanism, the sphere of applied science through the mechanism of venture contracts. It is also necessary to have banks specially created to participate in small business support programs and the activities of "business incubators". For a significant rise in the national economy, it is necessary to promote the maximum increase in the number of small innovative enterprises in the production sector, to stimulate the development of interrelations between small, medium and large industrial business, to creatively use the relevant foreign experience. All this should become an integral part of the overall policy in the field of restructuring the domestic economy, since business as a whole, regardless of its scale, is a single and interrelated process.

Fools’ Gold

Fools’ Gold

Agency Problems in Venture Capital Contracts: Islamic Profit Sharing Ratio as a Screening Device

Both Islamic and classical venture contracts suffer from information asymmetry and incentive problems. Venture capitalist and Entrepreneur have an agency relationship because of the insufficient information about the funded project and/or the entrepreneur type. Referring to the literature, this paper presents a theory of Profit Sharing Ratio (PSR) for PLS contracts with adverse selection about the entrepreneur type. In order to avoid the agency problem, this paper proposes a theoretical framework in which the negotiated profit sharing ratio (PSR) acts as a screening device. We show that agency problems are signaled when the entrepreneur accepts a PSR set beyond a given threshold. This critical value of the PSR corresponds to the maximum payoff to the venture capitalist. We suggest that the optimal PSR level may complete the carried interest in classical venture contracts and offers a new tool for screening entrepreneurs’ type.

Legal Strategies in Upstream Oil and Gas Contracts to Attract Foreign Investment: Iran's Case

Legal Strategies in Upstream Oil and Gas Contracts to Attract Foreign Investment: Iran's Case

Outsourcing versus joint venture from vendor’s perspective

Abstract Even though many studies have discussed outsourcing contracts from the client’s perspective, little research has been done from the vendor’s perspective. In this paper, we consider a vendor’s outsourcing contract decision-making process, during which the market price and the vendor’s operation cost are uncertain. This paper develops real option models to investigate whether a vendor firm should sign an outsourcing contract from its client or establish a joint venture with this client. Our results show that, while the feasibility of an outsourcing contract to the vendor increases with a higher contract price offered by the client, the feasibility of a joint venture depends on market conditions. We also find that there are loss-by-acceptance regions, in which either an outsourcing or a joint venture contract is currently feasible to start, but a vendor may sustain a loss by accepting such a contract.

Joint venture contract

Joint venture contract