Working Paper: CEPR ID: DP4056
Authors: Robert Hauswald; Ulrich Hege
Abstract: Joint ventures, a particularly popular form of corporate cooperation, exhibit ownership patterns that are concentrated at 50-50 or ?50 plus one share? equity allocations for a wide variety of parent firms. In this Paper, we argue that private control benefits create a discontinuity in contribution incentives around equal shareholdings that explains these two cluster points. Using data from US joint ventures, we empirically analyse the determinants of their ownership allocations and find that, consistent with our predictions, parents with similar contribution costs or a high potential for private benefits extraction prefer equal shareholdings and joint control. Similarly, parent-level spillovers make 50-50 ownership more attractive to the detriment of one-sided control while complementarities in parent contributions have the opposite effect. We also find evidence that contingent ownership arrangements such as explicit options and buyout or termination mechanisms serve to mitigate regime-specific contractual inefficiencies.
Keywords: joint ventures; ownership patterns; control rights; private benefits; empirical analysis
JEL Codes: D23; G32; L14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| joint control (D10) | optimal ownership allocations (G11) |
| private benefits (J32) | likelihood of 50-50 ownership (G32) |
| similar contribution costs (J30) | preference for equal shareholdings (D33) |
| dissimilar parent firms (L22) | more frequent one-sided control arrangements (L14) |
| contingent ownership arrangements (G32) | mitigate contractual inefficiencies (D86) |
| contingent ownership provisions (R21) | higher abnormal returns (G17) |