Revisiting Shareholder Value Creation via International Joint Ventures: Examining Interactions Among Firm- and Context-Specific Variables

Canadian Journal of Administrative Sciences, Jun 2004 by Merchant, Hemant

Shareholder value is also enhanced by firms' previous joint venture experience, which provides them with criteria for judging the efficacy of actions. Experienced parents can anticipate challenges related to a venture's implementation earlier than would otherwise be possible, permitting them to simultaneously develop feasible responses to implementation-related challenges (Harrigan, 1985, pp. 356-357). Additionally, experience enables parents to better respond to challenges originating from a partner's opportunistic propensity (Park & Russo, 1996) and increases the likelihood that a joint venture will reach a successful conclusion (Buckley & Casson, 1988).

Summary

This section identifies salient contextual and firmspecific variables recurrently argued and/or found to influence joint venture performance, and hints at the interconnectedness among contextual and firm-specific variables. It suggests that a more explicit recognition of contextual factors can facilitate a better understanding of how shareholder value is created via IJVs. To illustrate, parents with certain firm-specific characteristics, such as large firm-size and/or greater experience, may be able to compensate for the negative effects of contextual factors such as high levels of political risk, a weak property-rights regime, and so on (Benito & Gripsrud, 1995). These conditions-typically considered to lower parents' shareholder value-may not be an impediment to value creation, at least for parents possessing the noted firm-specific traits.

Similarly, attractive contexts may compensate for the impositions of certain limiting firm- specific conditions (Agarwal & Ramaswami, 1992) that might otherwise constrain shareholder value creation via IJVs. For example, economic and/or cultural proximity between firms' home and their ventures' host countries can compensate for the lack of certain firm-specific advantages, such as small firm size and limited international experience (Benito & Gripsrud, 1995). Although all firms can benefit from highly attractive locations, economic proximity would especially benefit small, usually resource-constrained firms since it facilitates scale economies and enhances firms' ability to serve foreign markets (Davidson, 1980).

Methods

Sample

This study searched the Dow Jones News Retrieval Service for announcements of equity joint ventures formed from 1986 to 1993 between American firms and non-American partners worldwide. To enhance its generalizability, this study did not restrict its sample in terms of partner domiciles or host country locations. However, to be included in the sample, a joint venture's American parent had to be a publicly traded manufacturing firm listed on the New York, American, or NASDAQ stock exchange. The manufacturing sector requirement was needed to meaningfully compare this study's results with those of previous work that has mostly focused on manufacturing firms. The publicly traded requirement was needed to develop a popular measure of shareholder value, abnormal return. The study measured shareholder value only for American parents because most non-American partners were not traded on the above-mentioned stock exchanges, and due to concerns about access to and reliability of non-American stock exchange data. This study deleted IJV formation announcements that did not meet the above sampling criteria. The sampling bias towards American firms is a limitation, but one that could be permitted to the extent American firms represent most active joint venture partners worldwide.