Value creation in joint venture dyads

Abstract

In this research, we address the following questions: (1) Do joint ventures (JVs) create value for both parent firms in the dyad? (2) How is the total value created in the venture influenced by resources and capabilities of the two parent firms? In addressing these questions, our objective is to provide added insight into the performance of JVs by shifting the level of analysis to the dyad from the individual parent firm. Our results indicate that a significant proportion of JVs created value for both parents. However, there was also considerable evidence of value destruction with a large proportion of JVs resulting in positive returns to one parent and negative returns to the other. In terms of the second question, we find that the total value created in a JV increases as the value of resources in the dyad increases and decreases with the differential in the value of resources between parents. We argue that the latter effect occurs because when there is a wide differential in capabilities, incentives are shifted away from joint value creation and cooperative behavior toward non-cooperative behavior and appropriating private benefits. Our findings broadly highlight the important role of private benefits in JVs and provide evidence that these benefits significantly influence the performance and dynamics of inter-firm collaboration in various ways.

Citation

Shyam Kumar, M.V. (2008), "Value creation in joint venture dyads", Cooper, C.L. and Finkelstein, S. (Ed.) Advances in Mergers and Acquisitions (Advances in Mergers and Acquisitions, Vol. 7), Emerald Group Publishing Limited, Leeds, pp. 29-50. https://doi.org/10.1016/S1479-361X(08)07003-8