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The value from acquiring and divesting a joint venture: a real options approach

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  • M. V. Shyam Kumar

Abstract

This study examines the value created from acquiring and divesting a joint venture. Unlike previous research which focuses on parent firm factors, the study examines value in light of the reason behind the termination of the venture and the characteristics of the target market. Consistent with the real options view, the paper finds that ventures divested to refocus a parent firm's product market portfolio were associated with significant value creation. In contrast, ventures acquired with the objective of growth and expansion in a target market, while not associated with significant value creation, did not destroy value either. Apart from these results, the paper also finds that acquirers and divesters gained lesser value when they terminated ventures in uncertain and concentrated industries. These latter findings highlight an important caveat with regard to termination: joint ventures confer valuable flexibility which is also forgone once they are terminated. Implications are discussed. Copyright © 2005 John Wiley & Sons, Ltd.

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  • M. V. Shyam Kumar, 2005. "The value from acquiring and divesting a joint venture: a real options approach," Strategic Management Journal, Wiley Blackwell, vol. 26(4), pages 321-331, April.
    • Handle: RePEc:bla:stratm:v:26:y:2005:i:4:p:321-331
    DOI: 10.1002/smj.449
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    Cited by:

    1. Ahlers, Oliver & Hack, Andreas & Kellermanns, Franz W., 2014. "“Stepping into the buyers’ shoes”: Looking at the value of family firms through the eyes of private equity investors," Journal of Family Business Strategy, Elsevier, vol. 5(4), pages 384-396.
    2. Kiran Pedada & S. Arunachalam & Mayukh Dass, 2020. "A theoretical model of the formation and dissolution of emerging market international marketing alliances," Journal of the Academy of Marketing Science, Springer, vol. 48(5), pages 826-847, September.
    3. Andrejs Čirjevskis, 2022. "Valuing Collaborative Synergies with Real Options Application: From Dynamic Political Capabilities Perspective," JRFM, MDPI, vol. 15(7), pages 1-22, June.
    4. Monge, Manuel & Lazcano, Ana & Parada, José Luis, 2023. "Growth vs value investing: Persistence and time trend before and after COVID-19," Research in International Business and Finance, Elsevier, vol. 65(C).

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