Joint venture governance

Abstract

Joint venture (JV) success greatly depends on governance mechanisms such as contracts, equity shares and boards of directors. Unlike some other types of alliances, JVs are always governed by detailed legal contracts that describe how the relationships are to be structured and governed. Using a unique database of 626 JV contracts, this dissertation expands our knowledge on JV governance through three interrelated empirical studies.The first study examines JV contracts and the institutional determinants of their complexity by drawing on institutional theory and transaction cost economics (TCE). Results indicate that contractual complexity is greater for international JVs than for domestic JVs. In addition, contractual complexity is also related to institutional variables based on the country in which the contract is enforced. For example, complexity is higher in countries with a civil law system in comparison to common law, in countries with inefficient court systems, and in countries where corruption levels are low.The second study addresses another crucial governance mechanism in JVs: The board of directors. A board is often used to help partner firms monitor and manage the JV, align the interests of the partners and address possible conflicts (Contractor & Reuer, 2014; Cuypers, Ertug, Reuer, & Bensaou, 2017). However, little is known about what determines whether a JV board is actually established. By analyzing the contracts and by drawing on TCE and agency theories, results show that JV boards serve as complements to JV contracts rather than substitutes. Boards are also more likely to be created for JVs which have multiple safeguards, for JVs that perform research and development, and for international JVs and JVs hosted in countries with lower quality of intellectual property rights protection. The last study explores the relationship between equity shareholding and board participation, two important JV governance mechanisms that are presumed to be correlated. Results confirm that this correlation is strong (0.58) but not extremely high. Drawing on TCE and resource dependency theories, this chapter examines why certain joint ventures present a deviation between the percentages of board representation share versus the equity shareholding of each partner. Results indicate that board representation in international JVs tends to have a greater deviation, while JVs with deadlock clauses, large boards, and JVs hosted in stable countries deviate less.