Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms

43 Pages Posted: 26 Feb 2008 Last revised: 12 Feb 2014

Susan Perkins

Northwestern University, Kellogg School of Management

Randall Morck

National Bureau of Economic Research (NBER); University of Alberta - Department of Finance and Statistical Analysis

Bernard Yin Yeung

National University of Singapore - Business School

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2012

Abstract

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.

Keywords: Corporate governance, strategic alliance failure, pyramidal group ownership structure, foreign direct investment

JEL Classification: F23, G34, L96

Suggested Citation

Perkins, Susan and Morck, Randall and Yeung, Bernard Yin, Innocents Abroad: The Hazards of International Joint Ventures with Pyramidal Group Firms (August 1, 2012). Available at SSRN: https://ssrn.com/abstract=1097265 or http://dx.doi.org/10.2139/ssrn.1097265

Susan Perkins (Contact Author)

Northwestern University, Kellogg School of Management ( email )

2001 Sheridan Road
LEV 3100
Evanston, IL 60208
United States

Randall K. Morck

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Alberta - Department of Finance and Statistical Analysis ( email )

2-32C Business Building
Edmonton, Alberta T6G 2R6
Canada
780-492-5683 (Phone)
780-492-3325 (Fax)

Bernard Yin Yeung

National University of Singapore - Business School ( email )

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Biz 2 Building Level 6
Singapore 117592
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

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