International Joint Ventures and the Value of Growth Options

38 Pages Posted: 27 Oct 2005

See all articles by Tony W. Tong

Tony W. Tong

University of Colorado at Boulder

Jeffrey J. Reuer

Purdue University - Krannert School of Management

Mike W. Peng

University of Texas at Dallas - Naveen Jindal School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 2005

Abstract

Real options theory predicts that international joint ventures (IJVs) confer valuable growth options to firms, yet there has been no direct evidence on whether firms actually capture growth option value from such investments and under what conditions. We bridge the gap between theory and evidence by empirically testing this prediction, and we also develop the theoretical arguments that IJVs' ownership structure, product market focus, and geographic location are important attributes influencing the uncertainty surrounding the ventures and the value of embedded growth options. The empirical evidence confirms that IJVs do enhance firms' growth option values, but only under certain circumstances. Specifically, minority IJVs and diversifying IJVs contribute to growth option value, but other types of IJVs do not. The findings also challenge recent claims on the growth option value of investments in emerging economies.

Keywords: Joint Ventures, Real Options, Growth Option Value, International Strategy

Suggested Citation

Tong, Tony W. and Reuer, Jeffrey J. and Peng, Mike W., International Joint Ventures and the Value of Growth Options (October 2005). Available at SSRN: https://ssrn.com/abstract=827269 or http://dx.doi.org/10.2139/ssrn.827269

Tony W. Tong (Contact Author)

University of Colorado at Boulder ( email )

UCB 419
Boulder, CO 80309-0419
United States
303-492-8854 (Phone)
303-492-5962 (Fax)

Jeffrey J. Reuer

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Mike W. Peng

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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