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Contracting Institutions and Ownership Structure in International Joint Ventures

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  • Ari Van Assche
  • Galina A. Schwartz

Abstract

This paper examines the role of contracting institutions on a multinational firm's optimal ownership strategy. We develop a model in which both a multinational firm and its local joint venture partner can ex post engage in costly rent-seeking actions to increase their ex ante agreed upon revenue share. We show that the host country's level of contract enforcement and level of judicial favoritism affect the parties' incentives to contribute to the international joint venture. The model allows us to identify testable hypotheses relating these institutional features with the performance and optimal ownership structure of international joint ventures.

Suggested Citation

  • Ari Van Assche & Galina A. Schwartz, 2013. "Contracting Institutions and Ownership Structure in International Joint Ventures," CIRANO Working Papers 2013s-04, CIRANO.
    • Handle: RePEc:cir:cirwor:2013s-04
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    Cited by:

    1. Salvador Gil‐Pareja & Rafael Llorca‐Vivero & Jordi Paniagua, 2020. "Trade law and trade flows," The World Economy, Wiley Blackwell, vol. 43(3), pages 681-704, March.
    2. Gani, Azmat & Clemes, Michael D., 2016. "Does the strength of the legal systems matter for trade in insurance and financial services?," Research in International Business and Finance, Elsevier, vol. 36(C), pages 511-519.
    3. Azmat Gani, 2018. "Contract Enforcement and Trade," Journal of Industry, Competition and Trade, Springer, vol. 18(1), pages 107-119, March.
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    5. Michael Olabisi, 2019. "Bridging the enforcement gap in international trade: Participation in the New York Convention on arbitration," Journal of International Business Policy, Palgrave Macmillan, vol. 2(1), pages 86-109, March.
    6. Latzer, Hélène, 2013. "Bridging the technology gap with limited human capital resources," Economic Modelling, Elsevier, vol. 35(C), pages 175-184.

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    More about this item

    Keywords

    international joint venture; ownership structure; institutions; contract enforcement; judicial favoritism;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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