Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms
Northwestern University, Kellogg School of Management
University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER)
Bernard Yin Yeung
National University of Singapore - Business School
August 1, 2012
The fundamental unit of production in microeconomics is the firm, which mirrors reality in the United States and United Kingdom. But elsewhere, business groups can be the more important unit for business strategy; not the firm. We examine international joint ventures in the telecoms industry in Brazil, where pyramidal groups are ubiquitous. We explain how corporate governance differences between agency behaviors in pyramidal groups versus freestanding widely held firms can lead to joint venture failures. We find joint ventures between pyramidal group-member firms and partners from countries where pyramids are rarer have significantly elevated failure rates; while joint ventures with partners from countries where pyramidal groups are ubiquitous are more likely to succeed. We provide clinical examples illustrating the mechanisms driving divergent partnership performance.
Number of Pages in PDF File: 43
Keywords: Corporate governance, strategic alliance failure, pyramidal group ownership structure, foreign direct investment
JEL Classification: F23, G34, L96
Date posted: February 26, 2008 ; Last revised: February 12, 2014
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