Doctor of Philosophy
Equity joint ventures (EJVs) have been a widely used and extensively studied governance structure for inter-firm cooperation. To date, the literature has largely overlooked share distribution between EJV partners although it is critical to the organization and operation of EJVs. Only recently has a pricing-error rule of share distribution been proposed; it argues that partners should align the equity split with the relative size of the error committed in pricing assets into the EJV. As the first conceptual guideline on share distribution in EJVs, this rule has yet to be empirically verified. Furthermore, no study has sought to identify and verify the antecedents of share distribution, which varies extensively across EJVs. As well, studies have not explored the impacts of share distribution on the consequences associated with EJVs.
This dissertation bridges the identified literature gaps by developing and testing two empirical models based on the pricing-error rule. According to this rule, only when share distribution of an EJV perfectly matches the two pricing errors will profit sharing to each partner fully offset the errors, which helps save the most on transaction costs. Guided by this argument, the first model contends that transaction cost saving will motivate partners to follow the pricing-error rule in splitting the equity shares. In turn, share distribution of EJVs will vary with two antecedents, specifically the relative efficiency of the intermediate market that each partner uses to transact input into the EJV and the partners’ relative pricing capabilities. Empirical results largely fail to support the proposed effect of market efficiency and pricing capabilities on share distribution.
The second model links share distribution with a specific consequence measure – the termination of EJVs. It is recognized that equity shares are misallocated between partners if the actual share distribution deviates from the optimal share distribution stipulated by the pricing-error rule. Depending on its degree, share misallocation is argued to increase the likelihood of EJV termination. Empirical findings from survival analysis suggest that share misallocation that occurs during the mid-life of an EJV is positively related to the probability the EJV ends whereas share misallocation at the formation of an EJV does not increase the termination likelihood until the EJV matures. The theoretical arguments and empirical findings of this dissertation contribute to the research on the antecedents and consequences of share distribution in EJVs as well as extending the pricing-error rule.
Wang, Liang Liang, "Antecedents and Consequences of Share Distribution in Equity Joint Ventures: A Pricing-Error Approach and Empirical Evidence" (2018). Electronic Thesis and Dissertation Repository. 5729.