Ownership and Control in Joint Ventures: Theory and Evidence

46 Pages Posted: 23 Nov 2003 Last revised: 20 Feb 2015

See all articles by Robert B. H. Hauswald

Robert B. H. Hauswald

American University - Department of Finance and Real Estate

Ulrich Hege

Toulouse School of Economics; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: March 14, 2006

Abstract

Joint ventures afford unique opportunities to study how firms assert property rights over jointly used assets because parents clearly delineate control. We argue that ownership allocations trade off investment incentives with control-related inefficiencies. We show how residual control rights can create a discontinuity in parent incentives that explains the observed clustering of ownership at 50-50 and 50-plus-one-share equity allocations. At the same time, the incentive benefits of ownership preserve a rationale for a wide spectrum of asymmetric shareholdings. Analyzing the determinants of ownership in US joint ventures, we find that, consistent with our model, the higher the potential for unilateral value extraction the more parents prefer equal shareholdings regardless of their attributes. Similarly, parent-specific spillovers make 50-50 ownership more attractive to the detriment of one-sided control whereas complementarities in parent resources have the opposite effect.

Keywords: Joint ventures, ownership and control, double-sided moral hazard

JEL Classification: G32, D23, L14

Suggested Citation

Hauswald, Robert B.H. and Hege, Ulrich, Ownership and Control in Joint Ventures: Theory and Evidence (March 14, 2006). AFA 2004 San Diego Meetings, Available at SSRN: https://ssrn.com/abstract=302924 or http://dx.doi.org/10.2139/ssrn.302924

Robert B.H. Hauswald (Contact Author)

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
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Washington, DC 20016-8044
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Ulrich Hege

Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France
+33 5 61 12 86 01 (Phone)

HOME PAGE: http://https://www.tse-fr.eu/people/ulrich-hege

European Corporate Governance Institute (ECGI)

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1000 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

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