Download this Paper Open PDF in Browser

Ownership and R&D Intensity in Foreign Affiliates under Incomplete Capital Markets

37 Pages Posted: 1 Jan 2015 Last revised: 15 May 2015

Winston W. Chang

State University of New York at Buffalo - Department of Economics

Youhui Wu

State University of New York (SUNY) at Buffalo

Date Written: May 10, 2015

Abstract

Whereas international joint venture is a dominated strategy in the property rights theory of the firm, this article shows that it can be optimal in the presence of contractual and financial frictions. We use the data of Chinese foreign affiliates to test and support our key theoretical result that joint ventures are in general more R&D intensive than wholly foreign-owned enterprises and this result is reinforced in financially more vulnerable industries. Furthermore, when wealth constraints loosen, the share of joint venture in foreign affiliates is also likely to decrease and decrease more in financially more vulnerable industries.

Keywords: Financial Frictions; Incomplete Contracts; Joint Ventures; Outsourcing; Vertical integration; R&D Intensity

JEL Classification: F14, F23, F36, G32

Suggested Citation

Chang, Winston W. and Wu, Youhui, Ownership and R&D Intensity in Foreign Affiliates under Incomplete Capital Markets (May 10, 2015). Available at SSRN: https://ssrn.com/abstract=2544061 or http://dx.doi.org/10.2139/ssrn.2544061

Winston W. Chang

State University of New York at Buffalo - Department of Economics ( email )

453 Fronczak Hall
Department of Economics, SUNY at Buffalo
Buffalo, NY 14260
United States
716-645-8671 (Phone)
716-645-2127 (Fax)

HOME PAGE: http://economics.buffalo.edu/facultyprofiles/winston-chang/

Youhui Wu (Contact Author)

State University of New York (SUNY) at Buffalo ( email )

12 Capen Hall
Buffalo, NY 14260
United States

Paper statistics

Downloads
53
Rank
322,132
Abstract Views
378