Culture distance and foreign equity ownership in international joint ventures

Qiangbing Chen (Department of Economics and Finance, East Tennessee State University, Johnson City, Tennessee, USA)
Yali Liu (Department of Mathematics, East Tennessee State University, Johnson City, Tennessee, USA)
Lu Jiang (School of Economics and Management, Tsinghua University, Beijing, China)

Journal of Chinese Economic and Foreign Trade Studies

ISSN: 1754-4408

Publication date: 5 October 2010

Abstract

Purpose

The paper aims to study the impact of cultural differences on the ownership structure of international joint ventures in China. It is reasoned that foreign investors, when faced with larger culture‐related investment uncertainties, may have the incentive to acquire more control rights to contain the risks by acquiring more equity shares in the joint ventures.

Design/methodology/approach

Data on international joint ventures in China were used to test the theory. The data contain 941 observations from Beijing, Shanghai, Shenzhen and Tianjing, covering a 13‐year time span. Pooled ordinary least square is used in the model estimation.

Findings

Cultural distance between China and foreign countries was found to increase the foreign equity share in the joint ventures, a finding contrary to traditional view. In addition, it was found that cultural distance in different dimensions does not play an equal role in affecting foreign equity shares. Last, there is significant evidence that the allocation of ownership between foreign and domestic investors in the joint ventures is influenced by the investor's relative importance in supplying different types of resources.

Originality/value

The paper introduces a new perspective into the study of culture and international joint venture. Foreign investors may be able to reduce investment risk by increasing equity shares, which gives them more internal control, in international joint ventures. In contrast, the traditional view is that larger cultural distance tends to discourage foreign equity ownership.

Keywords

Citation

Chen, Q., Liu, Y. and Jiang, L. (2010), "Culture distance and foreign equity ownership in international joint ventures", Journal of Chinese Economic and Foreign Trade Studies, Vol. 3 No. 3, pp. 189-203. https://doi.org/10.1108/17544401011084280

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Publisher

:

Emerald Group Publishing Limited

Copyright © 2010, Emerald Group Publishing Limited

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