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Dual and common agency issues in international joint ventures: Evidence from China

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  • H.J. Roelfsema
  • Y. Zhang

Abstract

With the help of a theoretical model we analyze the relation between equity sharing in an international joint venture (EJV) and local public goods provision in a setting where the local government faces a commitment problem to provide public services ex post to the set-up of the firm. We show that to overcome such a dual agency problem, the multinational leaves more local rents to the local partner than in the first-best, so as to provide stronger incentives for the government to supply public goods. Applying dynamic panel data estimation, we test the trade-off between local public goods and ownership shares across 31 Chinese provinces to find support for our mechanism

Suggested Citation

  • H.J. Roelfsema & Y. Zhang, 2010. "Dual and common agency issues in international joint ventures: Evidence from China," Working Papers 10-05, Utrecht School of Economics.
    • Handle: RePEc:use:tkiwps:1005
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    File URL: https://dspace.library.uu.nl/bitstream/handle/1874/43858/10-05.pdf
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    References listed on IDEAS

    as
    1. Emanuel Ornelas & John L. Turner, 2012. "Protection and International Sourcing," Economic Journal, Royal Economic Society, vol. 122(559), pages 26-63, March.
    2. Matthew Cole & Robert Elliott & Jing Zhang, 2009. "Corruption, Governance and FDI Location in China: A Province-Level Analysis," Journal of Development Studies, Taylor & Francis Journals, vol. 45(9), pages 1494-1512.
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    Cited by:

    1. Yi Zhang, 2019. "Institutions, Firm Characteristics, and FDI Spillovers," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(5), pages 1109-1136, April.

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    More about this item

    Keywords

    Equity sharing; foreign investment; local public goods; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • 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
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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