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http://ssrn.com/abstract=324123
 
 

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The Costs of Shared Ownership: Evidence from International Joint Ventures


Mihir A. Desai


Harvard Business School - Finance Unit; National Bureau of Economic Research (NBER)

C. Fritz Foley


Harvard Business School; National Bureau of Economic Research (NBER)

James R. Hines Jr.


University of Michigan; NBER

July 2002

Harvard NOM Working Paper No. 02-29; Harvard Business School Working Paper No. 03-017

Abstract:     
This paper analyzes the determinants of partial ownership of the foreign affiliates of U.S. multinational firms and, in particular, the marked decline in the use of joint ventures over the last 20 years. The evidence indicates that whole ownership is most common when firms coordinate integrated production activities across different locations, transfer technology, and benefit from worldwide tax planning. Because operations and ownership levels are jointly determined, it is helpful to use the liberalization of ownership restrictions by host countries and the imposition of joint venture tax penalties in the U.S. Tax Reform Act of 1986 as instruments for ownership levels to identify these effects. Firms responded to these regulatory and tax changes by using wholly owned affiliates instead of joint ventures and expanding intrafirm trade and technology transfer. The implied complementarity of whole ownership and intrafirm trade suggests that the reduced costs of engaging in integrated global operations contributed substantially to the sharply declining propensity of American firms to organize their foreign operations as joint ventures over the last two decades. Estimates imply that as much as one-fifth to three-fifths of the decline in the use of joint ventures by multinational firms is attributable to the increased importance of intrafirm transactions. The forces of globalization appear to have diminished rather than accelerated the use of shared ownership.

Number of Pages in PDF File: 52

Keywords: Multinational Business, Joint Ventures, Alliances, Organizational Form, Intrafirm Trade

JEL Classification: F23, L23, G32, H87

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Date posted: August 28, 2002  

Suggested Citation

Desai, Mihir A. and Foley, C. Fritz and Hines Jr., James R., The Costs of Shared Ownership: Evidence from International Joint Ventures (July 2002). Harvard NOM Working Paper No. 02-29; Harvard Business School Working Paper No. 03-017. Available at SSRN: http://ssrn.com/abstract=324123 or http://dx.doi.org/10.2139/ssrn.324123

Contact Information

Mihir A. Desai (Contact Author)
Harvard Business School - Finance Unit ( email )
Boston, MA 02163
United States
617-495-6693 (Phone)
617-496-6592 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
C. Fritz Foley
Harvard Business School ( email )
Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States
617-495-6375 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
James Rodger Hines
University of Michigan ( email )
625 South State Street
Ann Arbor, MI 48109-1215
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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