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Optimality of the 51:49 equity structure

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  • Wang, Susheng
  • Zhu, Tian

Abstract

As an extension of Wang and Zhu (2005), this short paper shows that the popular 51:49 equity structure can be optimal. This equity structure in joint ventures (JVs) has puzzled economists the world over. We find that, when the two parties are highly asymmetric in their abilities to acquire private benefits from their JV, the 51:49 equity structure is optimal and as efficient as joint control.

Suggested Citation

  • Wang, Susheng & Zhu, Tian, 2016. "Optimality of the 51:49 equity structure," Economics Letters, Elsevier, vol. 145(C), pages 270-273.
    • Handle: RePEc:eee:ecolet:v:145:y:2016:i:c:p:270-273
    DOI: 10.1016/j.econlet.2016.07.003
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    References listed on IDEAS

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    1. Hart, Oliver & Moore, John, 1990. "Property Rights and the Nature of the Firm," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1119-1158, December.
    2. Paul Belleflamme & Francis Bloch, 2000. "Optimal Ownership Structures in Asymmetric Joint Ventures," Working Papers 411, Queen Mary University of London, School of Economics and Finance.
    3. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
    4. Susheng Wang & Tian Zhu, 2005. "Control Allocation, Revenue Sharing, And Joint Ownership," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 895-915, August.
    5. Marco Marinucci, 2009. "Optimal ownership in joint ventures with contributions of asymmetric partners," Journal of Economics, Springer, vol. 97(2), pages 141-163, June.
    6. Darrough, Masako N & Stoughton, Neal M, 1989. "A Bargaining Approach to Profit Sharing in Joint Ventures," The Journal of Business, University of Chicago Press, vol. 62(2), pages 237-270, April.
    7. Paul Belleflamme & Francis Bloch, 2000. "Optimal Ownership Structures in Asymmetric Joint Ventures," Working Papers 411, Queen Mary University of London, School of Economics and Finance.
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    More about this item

    Keywords

    Income rights; Control rights; 51:49 equity structure; Joint control;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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