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A Rexamination of the Motives and Gains in Joint Ventures

Published online by Cambridge University Press:  06 April 2009

Shane A. Johnson  and
Mark B. Houston
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Abstract

We distinguish between horizontal and vertical joint ventures, and find correspondingly different valuation effects. Horizontal joint ventures create synergistic gains that are shared by the partners. In contrast, vertical joint ventures generate gains only for suppliers. This is similar to the patter we find for simple contracts, which suggests economic similiarities between vertical joint ventures and contracts. Analysing firms' choices between these contracting options, we find that firms choose vertical joint ventures over simple contracts when potential hold-up problems are severe and when suppliers face finance constraints. The results d not support a risk-sharing motive for joint ventures.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 35 , Issue 1 , March 2000 , pp. 67 - 85
Copyright
Copyright © School of Business Administration, University of Washington 2000

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Footnotes

*

University of Cincinnati, Department of finance, P.O. Box. 210195, Cincinnati, OH 45221 and Saint Louis University, School of Business and Administration, 3674 Lindell Boelvard, St. Louis, MO 63108, respectively. The authors thank Heathher Hulburt, Daniel Klein, Paul Malatesta (the editor). Myron Slovin, seminar participants at the University of Cincinnati, and an anonyms referee for helpful comments.

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