Two studies on the determinants and effects of international marketing joint venture dissolutions in an emerging market

Abstract

As part of their global growth strategy, multinational corporations headquartered in developed markets (DMs) are increasingly entering emerging markets (EMs) such as India and China by forming international marketing joint ventures (hereinafter referred to as “joint ventures”) with firms headquartered in EMs. However, about one half of these joint ventures are dissolved or terminated after four years of their formation. This dissertation, comprising of two essays, focuses on the determinants and consequences of dissolution of joint ventures formed between developed and emerging market firms. In essay 1, building on resource-advantage (R-A) theory and real options view, and using a uniquely compiled multisource dataset on dissolved and continuing joint ventures in India during the time period 2001 to 2012, I investigate the determinants of joint venture dissolutions in EMs. I find that majority control by the DM firm increases the likelihood of dissolution. However, majority control by the DM firm in a joint venture with broader scope decreases the likelihood of dissolution. Moreover, joint ventures that have higher investments, and that are formed when the EM has higher economic growth have reduced likelihood of dissolution. In essay 2, I examine the impact of joint venture dissolution announcements on shareholder value of the EM firms. Guided by the real options approach, the analysis of a uniquely compiled multisource dataset on joint venture dissolutions in India during 2001 to 2015 shows that dissolution announcements create positive shareholder value for the EM firm. I also find positive value for the EM firm when the partner firms have equal control of the joint venture prior to dissolution. Furthermore, I find that EM firms experience negative value when they decide to acquire the joint venture after dissolution, but this relationship is positively moderated by the joint venture’s pre-dissolution financial performance and EM firm’s alliance experience.