International joint ventures, shareholder returns, venture complexity, and political risk

• Published date: 01 April 2023
• Author: John J. Wild,Jonathan M. Wild,Kenneth L. Wild
• Date: 01 April 2023
• DOI: http://doi.org/10.1002/jcaf.22600

Received:  July  Accepted:  October 

DOI: ./jcaf.

RESEARCH ARTICLE

International joint ventures, shareholder returns, venture

complexity, and political risk

John J. Wild1Jonathan M. Wild2Kenneth L. Wild3

University of Wisconsin-Madison,

Madison, Wisconsin, USA

University of Wisconsin-Parkside,

Kenosha, Wisconsin, USA

University of London, London, UK

Correspondence

John J. Wild, University of

Wisconsin-Madison,  University Ave,

Madison,WI,USA.

Email: John.Wild@wisc.edu

Abstract

This study investigates the formation of international joint ventures into

emerging markets and the corresponding implications to shareholder wealth.

Empirical evidence from this study reveals that formation of international joint

ventures into emerging markets are value enhancing for shareholders. The for-

mation of international joint ventures increases firm value by more than %,

on average. This study also investigates two important factors for their influ-

ence on the market’s assessment of the joint venture formation—the complexity

of the joint venture and the political risk of the host country. Evidence in this

study reveals that less complex ventures into emergingmarkets reap significantly

greater shareholder wealth effects relative to more complex ventures. Evidence

also reveals that shareholders receive a risk premium for accepting greater polit-

ical risk. In addition to understanding the ramifications of international joint

venture formation, this study has relevance for managers’ site selection decisions

when considering venture complexity and the political risk of emerging markets.

KEYWORDS

emerging markets, international joint ventures, political risk, shareholder returns, venture

complexity

1 INTRODUCTION

This study investigates international joint venture forma-

tion in emerging markets and the corresponding impli-

cations to shareholder wealth. Research into these value-

creating forms of business combination has a long history.

The rationale for choosing the joint venture form of

organization over some other (licensing, franchising, inter-

nalization, market transacting) is motivated from at least

three theoretical perspectives. Transaction costs theory

predicts a joint venture formation when it is the organi-

zational form that minimizes the cost of performing an

activity while maximizing profits. Strategic behavior the-

ory posits that organizational form is the product of goals

to increase profitability and asset values through compet-

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any medium,

provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

©  The Authors. Journalof Corporate Accounting & Finance published by Wiley Periodicals LLC.

itive positioning. Organizational learning maintains that

the transfer of tacit knowledge from one firm to another

drives organization form, and joint venture formation

specifically.

Importantly, each theory of joint ventureformation pre-

dicts that these ventures are launched to contribute to

the future profitability of parent firms. Nevertheless, joint

ventures can assist in lowering the costs associated with

research or production, can be employed as a competitive

tool in a preemptive or defensive manner, or can be used

to create synergies or to diversify into new or unrelated

product markets. The motives for international joint ven-

tures across various regions of the world are no exception,

but greater emphasis tends to be placed on lowering the

costs of production, developing new geographic markets,

J Corp Account Finance. ;:–. wileyonlinelibrary.com/journal/jcaf 135