Real options strategy and firm heterogeneity: Foreign multinational enterprises’ equity acquisition in Chinese international joint ventures

This study examines the mechanisms by which foreign multinational enterprises (MNEs) acquire equity from international joint ventures (IJVs) in China, focusing on post-formation changes in equity shares. Drawing on real options theory, we predict that foreign MNEs are more likely to acquire additional equity shares in response to positive market cues than are local partners. We then integrate the concept of firm heterogeneity into the real options framework, suggesting that factors such as bargaining power, experiential capability, and the modernized governance structures of local partners can aid MNEs in effectively responding to positive market cues. By analyzing the Chinese Industrial Survey Database published by the Chinese National Bureau of Statistics, we find support for the influence of MNEs’ experience and local partners’ modernized governance structures on MNEs’ implementation of the real options strategy, with the exception of ownership levels. We offer detailed discussions and implications concerning these findings, including the intricate role of ownership levels in the real options mechanism.