A study of joint venture performance and institutional distance: The relationship between institutional distance and announcement return in international joint ventures

Jonas Hede & Nikolai Utzon

Studenteropgave: Kandidatafhandlinger

Abstrakt

Does distance matter? Two companies join together in what seems to be the ideal match, but success is often the exception rather than the rule. Joint ventures are unique and arguably one of the most complex types of arrangement and only gets more complicated when firms from different institutional settings cooperate across national and cultural boundaries. Previous theoretical research has provided mixed empirical results on cultural distance and international joint venture performance, but lack of sufficient data and appropriate accounting measures have often led to inconsistent empirical design and results. This thesis builds on the recently developed construct institutional distance and argues that managers need to consider institutional distance, when establishing a joint venture with a foreign partner. This thesis connects the previously disjointed theoretical constructs of institutional distance and joint venture performance into a theoretical framework. We decompose the institutional distance political-, administrative-, cultural- and knowledge distance and match these constructs against joint venture abnormal announcement return for the participating firms. This study sets forth the research question: “Does institutional distance matter for performance of the participating firms when they enter into an International Joint Venture (IJV)? We test this question on a sample of 994 IJV partner observations from a broad range of industries and regions. Using event study and multiple regression analyses, this empirical study broadly supports the assertion that announcement return performance is stronger within certain types of institutional distance dimensions. Our findings have yielded a significant improvement for predicting whether IJV announcement will create market value for the participating partners. Further, we have shown that medium political distance and the interaction between high absorptive capacity and high knowledge distance have positive and significant effects on IJV performance, while medium administrative distance has a negative effect. To validate our findings we complement our analyses with a pilot study that answers the following sub-research question: “Does institutional distance matter for IJV survival? The pilot study showed that IJVs with “optimal” distance characteristics were associated with higher survival rates. These results provide a broader understanding of key determinants of IJV performance. By introducing institutional theory we have provided a number of guidelines for investors and managers 2 who are involved in IJVs. From an investor’s perspective, our findings can be used to enhance his ability to predict the market returns around an IJV announcement, while managers can benefit from using our extended distance dimensions as key determinants when selecting suitable IJV partners.

UddannelserCand.merc.fsm Finance and Strategic Management, (Kandidatuddannelse) Afsluttende afhandling
SprogEngelsk
Udgivelsesdato2014
Antal sider135