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A Rexamination of the Motives and Gains inJoint 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 jointventures, and find correspondingly differentvaluation effects. Horizontal joint ventures createsynergistic gains that are shared by the partners.In contrast, vertical joint ventures generate gainsonly for suppliers. This is similar to the patter wefind for simple contracts, which suggests economicsimiliarities between vertical joint ventures andcontracts. Analysing firms' choices between thesecontracting options, we find that firms choosevertical joint ventures over simple contracts whenpotential hold-up problems are severe and whensuppliers face finance constraints. The results dnot support a risk-sharing motive for jointventures.

Information

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 SaintLouis University, School of Business andAdministration, 3674 Lindell Boelvard, St. Louis,MO 63108, respectively. The authors thank HeathherHulburt, Daniel Klein, Paul Malatesta (theeditor). Myron Slovin, seminar participants at theUniversity of Cincinnati, and an anonyms refereefor helpful comments.

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