The Control and Performance of Joint Ventures

Abstract

We analyze the control and performance of assets operating in joint ventures (JVs). Control in JVs is determined by the allocation of voting rights and by the contracts that govern the JVs. This hybrid allocation of control is aimed to ameliorate the potential for ex-post opportunism. An equal distribution of voting rights in the JVs’ board is associated with lower performance. Contractual provisions that determine the control in JVs are generally associated with a negative performance of JVs governed by equally controlled boards, but with a positive performance of JVs with boards controlled by one partner. The analysis suggests that contractual provisions encourage collaboration and improve JVs’ performance when one of the partners accepts a minority position in the board. The analysis also reveals that, with the exception of JVs with contractual option provisions, assets operating in our sample of JVs generate higher returns than assets in fully controlled subsidiaries.

Keywords: Joint ventures; joint control; joint ownership

JEL Classification: D23, L22, L24