information asymmetry, awerses selection theory …
TRANSCRIPT
"INFORMATION ASYMMETRY, AWERSESSELECTION AND JOINT—VENTURES:
THEORY AND EVIDENCE"
by
Srinivasan BALAKRISHNAN*and
Mitchell KOZA**
N° 90/32/SM
Associate Professor, Department of Strategic Management andOrganisation, The Carlson School of Management, University ofMinnesota, U.S.A.
Assistant Professor of Business Policy, Department of Strategyand Management, INSEAD, Boulevard de Constance, Fontainebleau77305 Cedex, France
This paper is a revised version of the INSEAD Working Paper 89/18.
Printed at INSEAD,Fontainebleau, France
INFORMATION ASYMMETRY, ADVERSESELECTION AND JOINT-VENTURES
Theory and Evidence
ABSTRACT
We propose that intermediate forms of organization like joint- ventures are superior
to markets and hierarchies when the costs of valuing complementary assets are non-
trivial. By allowing piecemeal transactions under shared ownership and control, joint-
ventures can reduce these costs significantly. Our theory is supported by the results
of a cross-sectional analysis of the abnormal returns to the parent firms in 64 joint-
venture announcements.
2
A joint venture is a special mechanism for pooling complementary assets owned
by separate firms.' In most joint venture: he parent firms combine part or all of their
assets into a legally separate unit and agree to share the profits from the venture. Like
the more typical common stock company. this unit is usually free to raise additional
capital, enter into contracts, buy and sell goods and services. hire employees, and the
like. In matters of policy making and control, however, the joint venture is more like
a partnership. A typical common stock company is governed by a Board, which acts
as the fiduciary agent of the numerous stockholders at large who are mostly investors
with little or no interest in policy or control. In a joint venture. the ownership and
control is shared by the parents in a more active sense. The parent firms through their
appointed representatives have a direct interest in the policy decisions and the control
of the operations of the "child". Often, an explicit collateral contract or agreement,
stipulating the mutual rights and obligations of the parent firms, accompanies the
formation of a joint venture.
In this paper, we present a comparison of joint-ventures. market mediated contracts
and hierarchical governance and analyze the trade-offs between (i) the transaction costs
in writing and executing contracts in the intermediate product market. (ii) the costs of
administering hierarchies and joint-ventures. and (iii) the costs that accompany control
transactions that redistribute the ownership of assets. The focus of our theory is on
the costs of redistributing ownership rights over assets. which we argue are non-trivial
when assets are non-homogenous and information about their quality, performance
characteristics. and value is not common knowledge. Asymmetric information about
the quality or the value of the target assets creates an "adverse selection" or a "
lemon " type of problem (Akerlof, 1970), creating roadblocks for a complete transfer of
ownership rights as in an acquisition. We propose that a joint-venture is a mechanism
for getting around this problem. It avoids a terminal control transaction and allows
piecemeal and continuous reassessment of the individual contributions to the venture.
A testable implication is that the shareholders of the parent companies will be
favorably disposed towards joint-ventures when the parents are less informed about
each other's business. With potential aggravation of the 'lemon' problem in this case,
acquisition will be more costly. We tested this with a sample of 64 domestic joint-
ventures, using the event study method. The results, based on a cross-sectional
analysis of the abnormal returns to the shareholders during the announcement of these
joint- ventures, support our hypothesis.
3
JOINT-VENTURES: BETWEEN MARKETS AND HIERARCHIES
Most modern businesses require access to a variety of laterally or vertically com-plementary productive assets and functional capabilities to produce and deliver a mar-ketable product. Classical economics assumed that transactions between firms canbe carried out costlessly in the intermediate markets so that production is charac-terized by complete and efficient division of labor and specialization. Coase (1937)was one of the few economists to challenge this assumption of costless transactions.Williamson (1975. 1987) has compared two alternative mechanisms by which firmsmay access complementary assets: (i) market mediated contract and (ii) hierarchywhen transactions are costly. A firm may choose to buy the relevant intermediateproducts under a spot or long-term contract negotiated on an arm's length basis. In-sufficient information, uncertainty and bounded rationality, however, prevent managersfrom writing complete contracts which specify all future contingencies, leaving scopefor opportunistic behavior and bargaining over changes. Vertical integration mitigatesor eliminates these problems.
Joint-ventures constitute another alternative for gaining access and control overcomplementary assets. By most definitions. joint- ventures imply equity and profitsharing. The essential characteristic of a joint-venture is that unlike a hierarchy. thereis no ultimate "unity of command" and property rights and control are shared. 2 Acollateral contract usually specifies and limits the rights and obligations of the parentfirms.
The literature on joint-ventures spans several disciplines including finance. indus-trial organization, organization theory, and business policy. Previous studies can beclassified into three broad groups: (i) theoretical and empirical studies which identifythe motives for joint-ventures as market power, resource dependence, synergy or risk-sharing (Berg and Friedman. 1980; Boyle. 1968; Duncan. 1982: Fusfeld. 1958; Harri-gan, 1985: McConnell and Nantell. 1985: Mead. 1967; Ordover and Willig. 1985; Pfefferand Nowak. 1976:Vickers. 1985) (ii) studies of international joint- ventures, many ofwhich view them as multinationals' responses to host-government demands (Beamish.1984: Contractor and Lorange (1988); Franko. 1971: Friedman and Kalmanoff, 1961)(iii) field studies which have led to guidelines for better management of joint-ventures(Harrigan. 1986: Killing. 1986). When there is no government insistence, this literaturesuggests three motives for joint-ventures:
1. Joint-ventures are formed to realize synergies. Synergies are necessary but not
4
sufficient conditions for a joint-venture, because contracts and hierarchies also
enable firms to access and control external. synergistic, resources.
2. The second explanation is that joint-ventures are instruments for gaining market
power and other strategic considerations. The empirical evidence for this is
mixed and inconclusive. Not withstanding the inconclusiveness of the evidence.
the market power argument also does not explain why a joint-venture is preferred
when a contract or a merger of the parent firms could have accomplished the
same results. In fact, with the exception of the joint R&D ventures, the anti-
trust policies of the Justice Department and the Federal Trade Commission had
treated mergers and joint-ventures equivalently (Brodley, 1976).
3. Finally, some practitioners have argued that joint-ventures are formed to share
the risk of uncertain business prospects. Implicit in this argument is the failure of
the financial markets to allocate risk efficiently. With efficient financial markets,
firms do not gain much by privately allocating risk between them and risk sharing
as a motive for joint-ventures looses its significance. Empirical evidence also does
not substantiate risk- sharing as a significant motive for joint-ventures (Pfeffer
and Nowak, 1976).
A theoretical issue that has not been addressed until recently is the relative effi-
ciency of joint-ventures and other mechanisms for coordination such as contracts and
hierarchies. Bruce Kogut (1988) offers a transaction cost based perspective on the rel-
ative merits of joint-ventures and other forms of coordination. His focus of comparison
is. however, on the long-term contract, which he argues. will be supplanted by joint
ventures for transactional and strategic considerations. Acquisition, which results in
hierarchical governance, is ruled out as inefficient for unspecified diseconomies. The
unique features of a joint-venture are shared ownership and control. Thus, it is a
"half-way house" between a contract and a hierarchy. Why do firms choose to joint-
venture when they could have merged or sold assets to form a hierarchy? One source
of diseconomy in redistributing the assets to form a hierarchy could be the inalien-
ability of the relevant assets from the parent firms. On closer examination, this does
not appear to be the issue as the joint-venture is also a separate legal and account-
ing entity.' A theory of joint- ventures should therefore explain what diseconomies of
hierarchies motivate the parents to settle for shared ownership and control.
5
INFORMATION ASYMMETRY, ADVERSE SELECTION AND THEJOINT-VENTURE
The Valuation Problem
When considerations of intermediate market failure lead a firm to enter laterally
or vertically related businesses, a number of non- trivial costs are incurred. Costly
and time-consuming R&D is necessary if proprietary technologies are involved. The
search for reliable suppliers and the selection of specialized plant and equipment with
compatible technical standards is also a complex task which may require specialized
knowledge. Technicians, engineers and managers for the new venture need to be
screened for their skills, recruited and trained to adapt to the new equipment. Many
teething problems will have to be overcome before the new production lines can be
brought up to capacity. Knowledge and organizational limitations will constrain the
speed and efficiency with which the firm can carry out these tasks. On the other
hand, strategic considerations such as first-mover advantages, may warrant the speedy
completion of these tasks. The firm may, therefore, decide to acquire part or all
of an extant firm which already has the technology and other assets. Acquisition
considerably shortens the internalization process and saves valuable time.
It is reasonable, however, to expect that the target firm will not sell unless it receives
a bid which is at least equal to the net present value of its assets. If the target assets
are specialized and there are no competitive markets in which identical assets are
traded. information on their prices will be either costly to obtain or unavailable. A self-
interested target firm will exploit this situation and opportunistically misrepresent the
value of its assets. Two examples from the takeover market illustrate the problems and
the pitfalls that a prospective buyer faces. After acquiring Collins de Aikman. a carpet
manufacturing firm. Wickes Inc.. discovered that the company had defaulted on certain
federal flammability standards concerning carpets it had supplied to schools. To meet
the potential product liabilities. Wickes had to set aside roughly $300 million which
was 20 % of the purchase price of CoWins do Aikman. In another instance CPC. a food
processor and corn milling company had acquired Mueller, a large pasta business, from
McKesson. a San Francisco based company for $ 125 million in 1983. In 1985, CPC
filed a 76 million suit against McKesson and Morgan Stanley. the investment bankers
for the acquisition, charging that it was induced to make the acquisition by fictitious
projections of Mueller's near-term and future performance. Ravenscraft and Scherer
(1987) describes several other instances in which both apparent and latent problems
6
wit ui the target firms fail to surface, even if pre-merger inspections were undertaken.
The target firm obviously has better information about the true value of its assets
and capabilities because of prior ownership and use. It may, however, choose to
withhold information about quality or organizational problems and inflate output and
other positive aspects. As Ravenscraft and Scherer (1987) have put it, "Would-be
sellers naturally present their best face." The target fi rm cannot credibly assure the
acquiring firm that it will disclose all the information that it has and negotiate the
sale in good faith, even if it were inclined to do so. The transfer of ownership of the
complementary assets is thus impacted by the "adverse selection" (Akerlof. 1970). The
acquiring firm. recognizing asymmetric information and the potential for opportunistic
misrepresentation by the target, will discount the price offered accordingly. Although
negotiations may continue and the acquiring firm may sweeten its offer, the process
will be terminated without a sale when the final offer falls short of what the target
firm knows to be the true value of the assets. There is evidence of such failures of
the market for acquisition from the finance literature. Bradley (1980) reports that 97
tender offers in his sample of 258 were unsuccessful. In Dodd and Ruback's (1977)
study. 48 out of a total of 172 tender offers were unsuccessful. The number of failures
can be more if merger and sell-off attempts are also included. While not all of these
unsuccessful acquisition attempts may be due to the adverse selection problem, they
are indicative of the significant costs involved in control transactions.
It is useful at this point to distinguish between risk arising from uncertain prospects
for a venture and the adverse selection due to asymmetric information. Suppose that
the buyer has all the information that the seller has about the target assets. There
will still be residual uncertainty about the venture (uncertainty about demand for its
products, for e.g.) which will be common to both the buyer and the seller. The buyer
can efficiently share this residual risk of the new venture by selling the risky claims
in the capital market. The price offered and accepted for the target assets will be
discounted to reflect the premium charged for this risk. A rational seller should accept
this offer because it is the true (risk-adjusted) value of his assets. If in addition,
there is an asymmetry between the buyer's and seller's information about the assets,
the price offered for the assets will be further discounted to reflect this asymmetry.
The seller will refuse to sell in this case because the offer price will fall short of his
expectations.
7
The Joint-Venture Solution
When the market for acquisitions fails, firms can form joint- ventures for combining
complementary assets. Transactions governed by a joint-venture will be efficient for
the following reasons:
1. First. a joint-venture allows the partners to rescind the relationship at a relatively
low cost. It can be structured as a mechanism which. like a leasing contract,
allows piece-meal transactions and renegotiation of compensation for individ-
ual contributions. Unlike a terminal sale and transfer of ownership rights, the
possibility of repeated contracting and termination of the relationship under a
joint-venture can induce information revelation and mitigate the adverse selec-
tion problem. There may be short-term gains from misrepresentations, but the
threat of liquidation of the joint-venture because of the resulting downstream
inefficiencies and losses will offset these gains and reduce the incentives to mis-
represent.
2. Second. the joint-venture, unlike a lease, introduces for each parent limited and
informal property rights and obligations, by way of shared ownership. The
members of the governing board or the executive committee of the joint venture,
who are usually drawn from both the parent companies, collectively decide the
policies of the joint-venture. They may also have limited rights to formally or
informally audit and verify the claims and actions of the parents by monitoring
the use of the assets of their respective parent companies as well as those of the
partner. These features of a joint-venture, unavailable in a pure contract such
as a leasing agreement. help to reduce the incentives for opportunistic behavior
in the joint-venture.
3. Finally, the joint-venture affords opportunities for learning and gathering new
information about the value of the partner's assets. Monitoring and auditing the
partner's asset use facilitate the learning process and eventually, the pricing of
those assets.
The joint-venture. however, is not a costless mechanism for combining assets. Because
of the absence of "unity of command", costly disputes over sharing the gains from the
venture are still a possibility. Renegotiations can potentially be expensive. Because
of shared control and the lack of "unity of command", the administrative costs of
8
managing the joint-venture will be more than the corresponding costs for a hierarchy.
These transaction costs may be viewed as the price that the joint-venture parents pay
to acquire the option to purchase the assets of the partner when the uncertainty about
the quality and value of the assets is fully resolved. Joint venture is thus a compromise
between a contract and a hierarchy. combining some of their positive features, but not
quite eliminating their negative features. It is the result of tradeoffs between the costs
of transaction in the intermediate markets and the costs of redistribution of property
rights in the market for corporate control.
There is still a puzzle that remains to be solved. If there are efficiency gains in
pooling the complementary assets into a join- venture, why were they owned separately
in the first place? The need for reorganization of the assets must have been sudden
or unanticipated. This may not be as farfetched as it may sound. Penrose (1959) has
argued that the firm at its inception may not recognize the production possibilities of
its assets fully. Instead, it uncovers them over time through a largely random process
man-machine interaction and learning by doing. Rumelt (1974) suggests a similar
process in the concentric and linked diversification of the initially single business firms.
Chandler's (1977) historical study of American businesses indicate that almost all of
them had started as single business and then evolved gradually into integrated and
diversified corporations. Industrial reorganization and the redistribution of ownership
rights and control over productive assets is therefore a necessary part of the process
of adaptation to technological progress and market evolution.
Empirical Implications
Summing up the arguments thus far. we note that strategic considerations and the
failure of the markets for intermediate products provide the incentives for firms to seek
lateral or vertical acquisitions. On the other hand. the lack of complete information
about the target assets may cause the market for corporate control to fail also. The
less informed the partners to a control transaction are about each other's businesses
and the higher the perceived variance in their valuation of the assets, the greater is
the likelihood of the failure of the market for acquisitions. Under these conditions.
the joint-venture can emerge as a superior substitute for both contract and hierarchy.
A testable implication is that. ceteris paribus. the shareholders of the parent firms
should expect greater gains from joint ventures. net of all transaction costs. when
the parents' primary business operations are dissimilar such that they are not capable
9
of appraising the value of each other's technology and assets. Our main testable
hypothesis is therefore:
Hypotheses 1 Shareholder reactions to the unanticipated announcement of joint-ventures will be positively correlated with the extent to which the primary businessoperations of the parent companies are dissimilar.
Hypothesis (1) calls for careful interpretation. The investors will respond less favorably
to joint-ventures between parents in similar businesses because the joint-venture is
not the minimum cost mechanism for coordinating synergistic assets in this case. The
appropriate mechanism here is the outright acquisition of the target assets. The value
of the option of joint-venturing is less because the informational gain is less when
the parents have better prior information on each other's assets. The failure of the
parent firms' management to use the most efficient mechanism may also be a signal
to the market about either poor management or the presence of managerial motives
behind the decision. The important point is that Hypothesis (1) is independent of the
magnitude of the synergistic value created by the joint-ventures. The degree of synergy
between the assets is not pertinent to the arguments about the relative efficiency of
the different mechanisms of coordination. In fact we expect value to be created in all
forms of coordination including joint-ventures. To expect otherwise is to deny the very
purpose of combining the assets, which leads us to our second hypothesis:
Hypotheses 2 On an average, investors in parent firms, anticipating significantgains from combining their complementary assets, will react favorably to joint-venture announcements.
The third hypothesis follows from our discussions on collusion and monopoly gains as
motives of joint-ventures. While theoretically plausible, our assessment of the empirical
evidence for collusion as a motive for joint-ventures is that it is mixed. Ceteris paribus,collusion and monopoly gains are most likely when the parent firms are in the same
industry. Therefore:
Hypotheses 3 Shareholder reactions to joint-ventures between parent companieswhose principal businesses are in the same industry will differ significantly fromtheir reactions to other joint-ventures.
To assess shareholder reactions to joint-venture announcements and test our various
hypotheses, we will use the standard event study method (Fama et a/, 1969) which hasbeen widely used in finance literature to evaluate corporate mergers and acquisitions.
10
? ETHODOLOGY
Evaluation of Investor Reactions
The event study method involves estimating the abnormal returns, if any. to theparent company's common stock holders when the stock price has adjusted to thenew information revealed by the announcement. In the standard event study method.the market model is first used to predict the normal return to the common stock of afirm:
Rig = + Qi1Nnt + fit
where.the return of firm i in period t
Rmt the return on value/ equally weighted mar-ket portfolio of securities in period t
ai and = firm specific parametersfit random error -- N(0, cri)
The model parameters are estimated using the monthly or daily firm and marketreturns for an estimation period preceding some discrete, unanticipated events (e.g..announcement of mergers, joint-ventures etc.). The deviations of the actual returnsfrom the predicted returns on the relevant securities - the abnormal returns - fora conventionally chosen event period around the event date but falling outside theestimation period, are then computed from:
ARit = Rie — (a; + ARna)
where. & and '4. are the ordinary least squares estimates of the parameters of themarket model. These abnormal returns are then averaged over a large sample of firmsaffected by similar events to cancel out the effect of extraneous noise:
NARg = I ARig
N
where N is the number of parent firms in the sample. The cumulative abnormal return(CAR) over any interval [t 1 ,t2] is obtained from,
g1CAR[ti, t2 ] = EAR,
11
where. t 1 and t2 are the beginning and ending month of the period over which the
cross-sectional average returns are cumulated. ARt and CAR[t i , t21 form the basic
statistics for evaluating the investor reactions to the event. A statistically significant
positive average return or CAR indicates that the event has a positive impact on the
return on the stocks of the firms affected by the event. Event studies assume that the
capital market is informationally efficient. In its weak form, this means that the market
adjusts instantaneously to publicly available information. The event study method is
simple to use and has proved to be quite powerful and robust in evaluating discrete
events affecting firms. Even though the joint-venture formation may extend over a long
time — it often does — the event study method is appropriate if the pre-announcement
negotiation is not public information.*
Sample
To evaluate investor reactions to the announcement of joint- ventures, we con-
structed a sample of joint-ventures from the quarterly joint-venture roster published
in Mergers and Acquisitions during the four year period 1974 – 1977. The period
was chosen to take advantage of industry data from the FTC Line of Business Re-ports, 1974-77. which the authors are using in other concurrent research projects on
joint-ventures. The following criteria were used to select the sample:
1. The joint-venture should be entirely U.S. based. Both parents should be incor-
porated in the U.S. and the joint-venture should also have its operations mainly
in the U.S.
2. The joint-ventures selected should not involve more than two parent companies.
This criterion was adopted to avoid the messy issues in measuring the similarity
among three or more parents.
3. The joint-venture should have been reported in the Wall Street Journal or in any
of the trade journals covered by the F&S Index of Corporate Changes during the
same month as indicated in the effective date of the joint-venture reported by
the Mergers and Acquisition roster.
4. Both the parent companies should be listed in the Million Dollar Directory of
American Businesses, along with the SIC (Standard Industry Classification)
codes for their primary businesses.
12
5. At least one of the parent's stock returns should be available from the monthly
returns file of the Center for Research in Security Prices (CRISP) at the University
of Chicago. for a period covering 72 months before and including the month of
the announcement of the joint-venture.
Our final sample consisted of 64 joint-ventures and 85 parent companies which satisfied
these criteria. Table 1 lists the number of joint-ventures and parent companies in
the sample for each year. For each of the 85 parent companies in our sample of
joint-venture announcements, we first estimated the market model using the monthly
returns from the CRISP files. for the period t-72 to t_ 13 , with to being the event month,
referring to the month of the joint-venture announcement. The abnormal returns and
the CAR's for each parent were computed for 13 months including the announcement
month. t_12 to to. The estimation and announcement periods chosen were comparable
to previous event studies using monthly returns (see for e.g. Asquith and Kim. 1982;
Dodd and Ruback. 1977; Malatesta. 1983).
— insert Table 1 about here —
RESULTS AND DISCUSSION
Table 2 shows the average and cumulative abnormal returns, and the cross-sectional
variances for t_12 to to. for all the parent firms in the sample. The table reveals that the
stockholders of the parent companies obtained an abnormal return of 1.19 % during
the month of the announcement of the joint-ventures. The Z- statistic for this return
was significant 0.01 level and therefore the null hypothesis of no significant gains from
combining the complementary assets of the parent companies in a joint-venture can
be rejected.'
— insert Table 2 about here —
Fig.1 is a plot of the cumulative abnormal returns for the period. The cumulative
abnormal returns increases 3.9% from t_12 to to. The increases in abnormal returns
over several other sub- intervals or holding periods were also statistically significant.
These results broadly support Hypothesis (2). Shareholder realize significant gains
from joint-ventures, a result which is consistent with previous results obtained by
McConnell and Nantell (1985).6
13
Of primary interest to us is whether the investors react less favorably to joint-ventures between parents operating in similar businesses. To investigate the relation-ship between joint-venture efficiency and parent similarity and test Hypothesis 2. weconstructed a simple measure of the "distance between the primary businesses of theparent companies. The measure was based on the 3-digit SIC's of the parent firms ofthe jth joint- venture, normalized over the maximum possible distance:
Di = S — SIC12 I /899
Greater the distance, more dissimilar the businesses are. 7 We expect the abnormalreturns obtained by investors from joint-venture announcements to increase with thedistance between the parent companies. If we regressed the abnormal return for theevent month for each parent company on the corresponding distance the slope shouldbe positive. To correct for possible heteroscedasticity. we first standardized the ab-normal return for each parent company i (Brown and Warner. 1985):
S = ARiticri
where.
— (ir (AR, AR,) 2 /60 ,t=-72
The standardized abnormal return for the announcement month for each parent com-pany in the sample was than regressed on the corresponding distance between itsprimary business and the primary business of its partner in the joint-venture. We alsorepeated the regression with a rank transformation of the distance as the independentvariable. The results of these regressions are summarized in Table 3. The coefficientfor the distance as well as its rank transformation was positive and significant 0.007and 0.018 respectively. These results seem to lend considerable support to our hypoth-esis that investors will react more favorably to the announcements of joint-venturesbetween parents in dissimilar businesses.
Much as we would like to consider this evidence as conclusive, the shortcomingsin the methodology arising from our measure of similarity of businesses require us tointerpret the results with caution. We had noted earlier that the distance measurebased on SIC captures only the information content of production technology. This isan obvious limitation. Also, to the extent that the distance measure reflects potential
14
competition between the parents in their core markets, the methodology admits alter-
native interpretations of our main result that joint-ventures between similar parents are
less favorably received than those between dissimilar parents. The interpretation that
favors our theory is that the market's poor response is because of the wrong choice
of the coordination mechanism. Acquisition is the least cost mechanism for realizing
synergies when the parents are in related businesses and they pay a penalty when
they fail to fulfill the market's expectations about this. The alternative interpretation
is that when the parent businesses are in adjacent markets, the likelihood of future
conflicts between them is more, increasing the costs of administering the joint-venture
successfully. This may indeed be so and it tempers our enthusiasm about the results
which may have little to do with the costs of adverse selection in control transactions.
Further research is required before we can reject these competing interpretations.
— insert Table S about here —
To test the third hypothesis that joint-ventures facilitate collusion and result in
significant gains in monopoly power for the parents, we divided the 64 joint-ventures
into two portfolios based on the parents' primary businesses: (i) the monopoly portfolio
of 11 joint-ventures in which the parent firms' businesses were within the same or 4
or 3 digit SIC and (ii) the remaining 53 joint-ventures which we call the non-monopoly
portfolio.' The average abnormal returns. CAR's and the cross-sectional variances
for the two portfolios are reported in Table 4. The average abnormal return for the
announcement month for the monopoly portfolio was positive but insignificant. For the
non-monopoly portfolio of joint-venture.s the average abnormal return to the parents
was positive and significant 0.01 level. The t-statistic for the difference between the
two averages was positive in favor of the non-monopoly portfolio and significant 0.01
level. The Wilcoxon-Mann-Whitney rank test statistic for the difference between the
two sub-samples was also positive but not significant. Over longer intervals, however,
the cumulative average returns for the two portfolios did not show any significant
differences.
— insert Table 4 about here —
The CAR's are plotted in Fig.2. The CAR's for both the groups increase from
t_12 to to. the announcement month. The CAR's for the monopoly portfolio are
generally lower than those for the non-monopoly portfolio during the period t_12 to
15
to. Taken together, these results seem to reject collusion as the primary motive forjoint-ventures. We may also infer from these results that the parent companies in themonopoly group would have been better off with the outright purchase and acquisitionof the complementary assets than organizing them in a joint-venture.
Noting that the distance between the parent companies in the monopoly joint-ventures is zero, and that this may be a potential source of distortion in the regressionsfor testing Hypothesis (1). we replicated these regressions after excluding these joint-
ventures from the sample. Table 3 reports the results of the regressions for thistruncated sample along with those for the full sample. For the truncated sample,the coefficients of the distance and its rank transformation were both positive andsignificant 41.004 and .002 levels, respectively. Again, the evidence strongly supportsour hypothesis that joint-ventures will be preferred when the parents are primarilyengaged in dissimilar businesses.
CONCLUSION
Earlier studies of joint-ventures have likened them to mergers and acquisitions,
as a mechanism for realizing synergies. collusion or risk-sharing. Our theory is thatthe joint-venture is a mechanism for pooling complementary assets without havingto resort to a terminal sale and redistribution of ownership and control rights overthese assets. Such non-terminal mechanisms will be efficient when the market foracquisitions fails due to the asymmetry between the seller's and buyer's informationabout the target assets. This is most likely when the parents operate in dissimilarbusinesses.
Our theory is supported by the evidence based on investors' reactions to joint-
venture announcements. In an event study of 64 joint-venture announcements, we ob-
served that the shareholders of the parent companies involved in these joint-venturesobtained significantly larger abnormal returns when these companies were engagedin businesses which were further apart in a technological and managerial sense. Al-though value is created in all joint- ventures, the shareholders seem to favor more,joint-ventures between parents engaged in dissimilar businesses. We interpret theseresults to mean that while both joint-ventures and acquisitions may yield synergisticgains to shareholders, there are non-trivial differences between the two mechanisms.
Under specific conditions one may be superior to the other. Besides the obvious impli-cations for management's choice between acquisition and joint-venture, the theory and
16
empirical results should also be of interest to policy makers in the areas of anti-trust
and inter- firm cooperation.
17
NOTES
1. Following Richardson (1972). we define assets or the functions embodied in
them as complementary. "when they represent different phases of a process of
production and require in some way or another to be coordinated." By assets
here and elsewhere in the paper, we mean physical assets, tangible and intangible.
which are alienable and for which property rights are well-defined.
2. Joint-ventures set-up as limited partnerships are an exception. The 'sleeping'
partners in a limited partnership joint- venture has no say in policy making or
control.
3. Hennart (1988) describes some diseconomies of acquisition of firm-specific as-
sets. These relate to international joint-ventures where cultural and national in-
terests may make acquisitions more costly than joint-ventures. Also. see Kogut
and Singh (1985), who present some evidence for this.
4. A number of studies in finance, strategy and other areas have employed the event
study method to evaluate investor reactions merger announcements (see Jensen
and Ruback. 1983 and Weston and Chung. 1983, for a review of several event
studies of acquisitions). Protracted negotiations and anticipation is a problem
in all these studies but not a serious one provided appropriate precautions are
undertaken. Also, see Brown and Warner (1980:1985) for an assessment of
the statistical power of the event study method and the associated tests in
successfully detecting abnormal returns from unanticipated events.
5. The appropriate test-statistic for the abnormal return is given by
ARtZ =
at
where a is given by.
t=-isat = ( E (ARt — A=R)2160,
t=-72
= t-131AR= — E ARe
60 g=-72
18
Z is distributed Student—t and for large samples. is approximately unit normal
(Brown and Warner. 1985).
6. We note that the average abnormal returns for t = —10 and t = —6 are sig-
nificantly positive and negative, respectively. We are unable to explain this.
Perhaps, this is a small sample problem. which tempers our enthusiasm about
the other results as well.
7. We recognize the limitations in using the nominally scaled Standard Industrial
Classification, which is based primarily on production technologies, for measur-
ing similarity of businesses. With more information about past transactions and
other relationships between the joint-venture parents. we can, in principle, con-
struct a more complex measure of the information asymmetry between them.
Much of this information, however. is proprietary and difficult to obtain.
8. See Caves et al (1980:199-200) for a measure of "distance" between businesses
based on their SIC's which takes a value of zero if the 4-digit SIC's of the two
parent were within the same 3-digit SIC. a value of one if they were in different 3-
digit SIC's but the same 2-digit SIC's, and a value of two if they were in different
two digit SIC's. In our sample there was just one joint-venture for which this
distance had a value of 1. that is, the parent companies primary businesses were
in different 3-digit SIC's but the same 2-digit SIC. This rather small sample
problem forced us to form two portfolios instead of three, if we had followed the
Caves et al measure strictly.
19
References
[1] Akerlof, G.A. 1970. "The Market for 'Lemons': Qualitative Uncertainty and theMarket Mechanism." Quarterly Journal of Economics, 84:488-500.
[2] Alchian. A.A. and Demsetz, H. 1972. "Production. Information Costs and Eco-nomic Organization." American Economic Review. 62:777-795.
[31 Asquith, P. and E.Han Kim. 1982. The Impact of Merger Bids on the ParticipatingFirms' Security Returns." Journal of Finance. December:1209-1228.
[4] Berg. Sanford and Philip Friedman. 1981. " Impacts of Domestic Joint Ventureson Industrial Rates of Return: A Pooled Cross- Section Analysis. 1964-1975".The Review of Economics and Statistics. 63:293-298.
[5] Boyle. S. 1968. "An Estimate of the Number and Size Distribution of DomesticJoint Subsidiaries." Antitrust Law and Economic Review. 1:81-92.
[6] Bradley. Michael. 1980. "Interfirm Tender Offers and the Market for CorporateControl". Journal of Business. 53:345-376.
[71 Brodley. J.F. 1976. "The Legal Status of Joint Ventures Under the AntitrustLaws: A Summary Assessment." Antitrust Bulletin. 21:453-83.
[81 Brown S. and Warner. J. Measuring security price performance. Journal of Fi-nancial Economics. 8. June. 1980. 205-258.
[91 . Using daily stock returns: the case of event studies. Journal
of Financial Economics. 14. March. 1985. 3-31.
[10] Caves. R.E.. Porter. M.E.. Spence. A.M. and Scott. J.T. 1980. Competition in
the Open Economy. Cambridge. MA: Harvard University Press, 199-200.
[11] Coase. R.H. 1937. "The Nature of the Firm," Economica. 4:331-351.
[12] Contractor. F. and Lorange. P. (1988). Cooperative Strategies in International
Business. Lexington. MA: Lexington Books.
[13] Cozzolino, J.M. 1981. "Joint-Venture Risk: How to Determine Your Share." Merg-
ers and Acquisitions. 16(3):35-39.
20
[14] Dodd. Peter and Ruback. Richard. 1977. "Tender Offers and Stockholder Returns:An Empirical Analysis". Journal of Financial Economics. 5:351-374.
[15] Duncan. J.L. 1982. Impacts of New Entry and Horizontal Joint Ventures onIndustrial Rates of Return." Review of Economies and Statistics. 64:339-343.
[16] Fama. E.F.. Fisher. L.. Jensen. M.C. and Roll. R. 1969. The adjustment of stockprices to new information. International Economic Review. 1:1-21.
[17] Franko. Lawrence G. 1971. Joint Venture Survival in Multinational Corpora-tions. New York: Praeger Publishers.
[18] Friedman. W. and Kalmanoff. G. 1961. Joint International Business Ventures.New York: Columbia University Press.
[19] Fusfeld. D.R. 1958. "Joint Subsidiaries in the Iron and Steel Industry." AmericanEconomic Review. 48:578- 587.
[20] Harrigan. K.R. 1985. Strategies for Joint Ventures. Lexington. MA: LexingtonBooks.
[21] Harrigan. K.R. 1986. Managing for Joint Venture Success. Lexington. MA: Lex-ington Books.
[22] Hennart. J.F. 1988. "A Transaction Costs Theory of Joint ventures". StrategicManagement Journal. 9:361-74.
[23] Jensen. M.C. and Ruback. R. 1983. The Market for Corporate Control. Journalof Financial Economics, 11:5-50.
[24] Killing. J.P. 1983. Strategies for Joint Venture Success. New York: Praeger.
[25] Kogut. B. 1988. Joint Ventures: Theoretical and Empirical Perspectives. StrategicManagement Journal. 9:319-22.
[26] Kogut.B. and Singh. H. "Entering the United States by Acquisition or Joint Ven-ture: Country Patterns and Cultural Characteristics". Working Paper. The Whar-ton School. 1985.
[27] Malatesta. P.H. The wealth effect of merger activity and the objective functionsof merging firms. Journal of Financial Economics. 11: 155-181.
21
[28] McConnell. J.J. and Nantell. T.J. 1985. "Corporate Combinations and Common
Stock Returns: The Case of Joint Ventures." Journal of Finance, 2:519-536.
[29] Mead. W.J. 1967. "The Competitive Significance of Joint Ventures." AntitrustBulletin, 12:819-849.
[3O) Ordover. J.A. and Willig. R.D. 1985. "Anti- trust for high-technology industries:
assessing research joint- ventures and mergers". Journal of Law and Economics,28:311- 43.
[31] Pfeffer. J. and Nowak. P. 1976. "Joint Ventures and Inter-organizational Interde-
pendence", Administrative Science Quarterly. 21:398-418.
[32] Vickers. J. 1985. Pre-emptive patenting, joint- ventures. and the persistence of
oligopoly". International Journal of Industrial Organization, 3:261-73.
[33] Weston, J.F. and Chung. S. 1983. "Some aspects of merger theory." Journal ofMidwest Finance Association, 12:1-33.
[34] Williamson. Oliver E. 1975. Markets and Hierarchies. New York: Free Press.
[35] . 1979. "Transaction- Cost Economics: The Governance of Con-
tractual Relations". Journal of Law and Economics. 1979, 22:233-261.
22
Table 1Sample
Year Number ofinint-vpntnros
Number of
Parent Firmc1974 8 10
1975 16 22
1976 22 30
1977 18 23
Total 64 85
23
Table 2Abnormal Returns: Full Sample
All joint-ventures: N = 85RelativeMonth
AbnormalReturn
CAR Cross-sectionalVariance
-12 -0.0039 -0.0039 0.0061-11 0.0191 0.0152 0.0094-10 0.0042 0.0194 0.0069-9 -0.0036 0.0157 0.0075-8 0.0071 0.0228 0.0059-7 0.0071 0.0299 0.0067-6 -0.0171 0.0128 0.0093-5 -0.0040 0.0088 0.0090-4 0.0013 0.0101 0.0111-3 -0.0027 0.0075 0.0060-2 0.0100 0.0175 0.0063-1 0.0097 0.0272 0.00630 0.0119 0.0390 0.0055
24
Table 3
Regression Results
All Joint-ventures Truncated Sample
Distance Rank Distance Rank
Constant -0.0485 -0.1607 -0.163 -0.629
X Coefficient 0.9399 0.0076 1.5924 0.0155
t-statistic 2.469° 2.092° 2.617` 2.856d
R Squared 0.068 0.05 0.094 0.11
No. of Observations 85 85 68 68
°significant t007
°significant 0.018
`significant v.004
dsignificant 0.002
25
Table 4
Abnormal Returns: Monopoly &
Others Portfolios
Relative
Month
Monopoly
AbnormalReturn
Portfolio:
CAR
N = 17
Cross-
sectionalVariance
Others
Abnormal
Return
Portfolio:
CAR
N = 68
Cross-
sectionalVariance
-12 0.0049 0.0049 0.0040 -0.0061 -0.0061 0.0066
-11 -0.0064 -0.0015 0.0043 0.0255 0.0194 0.0105
-10 -0.0006 -0.0021 0.0022 0.0054 0.0248 0.0081
-9 0.0049 0.0028 0.0024 -0.0058 0.0190 0.0088
-8 -0.0141 -0.0113 0.0015 0.0123 0.0313 0.0069
-7 -0.0089 -0.0202 0.0024 0.0111 0.0424 0.0076
-6 0.0068 -0.0133 0.0061 -0.0231 0.0194 0.0099
-5 -0.0006 -0.014 0.0038 -0.0049 0.0145 0.0103
-4 0.0110 -0.0029 0.0032 -0.0011 0.0134 0.0130
-3 -0.0166 -0.0195 0.0065 0.0008 0.0142 0.0058
-2 0.0198 0.0002 0.0038 0.0076 0.0218 0.0069
-1 0.0132 0.0134 0.0029 0.0088 0.0306 0.0061
0 0.0027 0.0161 0.0029 0.0142 0.0448 0.0071
26
•----11.-----./
i
0.01 r
0.000 -
0 0
-0.000 ■
t■-• r2
■
■
i1ra -0
Figure 1CAR: Full Sample
0 . 04 §
secutrria
27
Figure 2CAR: Monopoly and Others Portfolios
Wean ii:rrs:
--0.03 ...
INIONTI4
28
86/01 Arnoud DE MEYER
86/02 Philippe A. NAERTMarcel WEVERBERGHand Guido VERSVIJVEL
86/03 Michael BRIM
86/04 Spyros MAKRIDAKISand Michele NIHON
86/05 Charles A. VYPLOSZ
86/06 Francesco GIAVAllI,Jeff R. SHEEN andCharles A. VYPLOSZ
86/07 Douglas L. MacLACHLANand Spyros MAKRIDAKIS
86/08 Jose de la TORRE andDavid H. NECKAR
86/09 Philippe C. HASPESLAGH
86/10 R. MOENART,Arnoud DE MEYER,J. BARGE andD. DESCHOOLMEESTER.
86/11 Philippe A. NAERTand Alain BULTEZ
86/12 Roger BETANCOURTand David GAUTSCHI
86/13 S.P. ANDERSONand Damien J. NEVEN
86/14 Charles WALDMAN
86/15 Mihkel TOMBAK andArnoud DE MEYER
"The R 6 D/Production interface".
"Subjective estimation in integratingcommunication budget and allocationdecisions: a case study", January 1986.
"Sponsorship and the diffusion oforganizational innovation: a preliminary view".
"Confidence intervals: an empiricalinvestigation for the series in the M-Competition" .
"A note on the reduction of the vorkveek",July 1985.
"The real exchange rate and the fiscalaspects of a natural resource discovery",Revised version: February 1986.
"Judgmental biases in sales forecasting",February 1986.
"Forecasting political risks forinternational operations", Second Draft:March 3, 1986.
"Conceptualizing the strategic process indiversified firms: the role and nature of thecorporate influence process", February 1986.
"Analysing the issues concerningtechnological de-maturity".
"Prom "Lydiametry" to "Pinkhamization":misspecifying advertising dynamics rarelyaffects profitability".
"The economics of retail firms", RevisedApril 1986.
"Spatial competition a la Cournot".
"Comparaison internationale des marges brutesdu commerce", June 1985.
"How the managerial attitudes of firms withFMS differ from other manufacturing firms:survey results", June 1986.
"Les primes des offres publiques, la noted'information et le marchó des transferts decontrOle des societW.
"Strategic capability transfer in acquisitionintegration", May 1986.
"Towards an operational definition ofservices", 1986.
"Nostradamus: a knovledge-based forecastingadvisor".
"The pricing of equity on the London stockexchange: seasonality and size premium",June 1986.
"Risk-premia seasonality in D.S. and Europeanequity markets", February 1986.
"Seasonality in the risk-return relationshipssome international evidence", July 1986.
"An exploratory study on the integration ofinformation systems in manufacturing",July 1986.
"A methodology for specification andaggregation in product concept testing",July 1986.
"Protection", August 1986.
"The economic consequences of the FrancPoincare", September 1986.
"Negative risk-return relationships inbusiness strategy: paradox or truism?",October 1986.
"Interpreting organizational texts.
"Why follow the leader?".
"The succession game: the real story.
"Flexibility: the next competitive battle",October 1986.
"Flexibility: the next competitive battle",Revised Version: March 1987
INSEAD WORKING PAPERS SERIES
1986
86/16 B. Espen ECKRO andHerwig M. LANGOHR
86/17 David B. JEMISON
86/18 James TEBOULand V. MALLERET
86/19 Rob R. VEIT2
86/20 Albert CORHAY,Gabriel HAVAVINIand Pierre A. MICHEL
86/21 Albert CORHAY,Gabriel A. HAVAVINIand Pierre A. MICHEL
86/22 Albert CORHAY,Gabriel A. HAVAVINIand Pierre A. MICHEL
86/23 Arnoud DE MEYER
86/24 David GAUTSCHIand Vithala R. RAO
86/25 H. Peter GRAYand Ingo WALTER
86/26 Barry EICHENGREENand Charles VYPLOSZ
86/27 Karel COOLand Ingemar DIERICKX
86/28 Manfred KETS DEVRIES and Danny MILLER
86/29 Manfred KETS DE VRIES
86/30 Manfred KETS DE VRIES
86/31 Arnoud DE MEYER
86/31 Arnoud DE MEYER,Jinichiro NAKANE,Jeffrey G. MILLERand Kasra FERDOWS
86/32 Karel COOL
Performance differences among strategic groupand Dan SCHENDEL members", October 1986.
86/33 Ernst BALTENSPERGERand Jean DERMINE
86/34 Philippe HASPESLAGHand David JEMISON
86/35 Jean DERMINE
86/36 Albert CORHAY andGabriel HAVAVINI
86/37 David GAUTSCHI andRoger BETANCOURT
86/38 Gabriel HAWAWINI
86/39 Gabriel HAWAWINIPierre MICHELand Albert CORHAY
86/40 Charles VYPLOSZ
86/41 Kasra FERDOWSand Wickham SKINNER
86/42 Kasra FERDOVSand Per LINDBERG
86/43 Damien NEVEN
86/44 Ingemar DIERICKXCarmen MATUTESand Damien NEVEN
1987
87/01 Manfred KETS DE VRIES
87/02 Claude VIALLET
87/03 David GAUTSCHIand Vithala RAO
87/04 Sumantra GHOSHAL andChristopher BARTLETT
87/05 Arnoud DE MEYERand Kasra FERDOVS
"The role of public policy in insuringfinancial stability: a cross-country,comparative perspective", August 1986, RevisedNovember 1986.
"Acquisitions: myths and reality",July 1986.
"Measuring the market value of a bank, aprimer", November 1986.
"Seasonality in the risk-return relationship:some international evidence", July 1986.
"The evolution of retailing: a suggestedeconomic interpretation".
"Financial innovation and recent developmentsin the French capital markets", Updated:September 1986.
"The pricing of common stocks on the Brusselsstock exchange: a re-examination of theevidence", November 1986.
"Capital flows liberalization and the EMS, aFrench perspective", December 1986.
"Manufacturing in a new perspective",July 1986.
"EMS as indicator of manufacturing strategy",December 1986.
"On the existence of equilibrium in hotelling'smodel", November 1986.
"Value added tax and competition",December 1986.
"Prisoners of leadership".
"An empirical investigation of internationalasset pricing", November 1986.
"A methodology for specification andaggregation in product concept testing",Revised Version: January 1987.
"Organizing for innovations: case of themultinational corporation", February 1987.
"Managerial focal points in manufacturingstrategy", February 1987.
"Customer loyalty as a construct in themarketing of banking services", July 1986.
"Equity pricing and stock market anomalies",February 1987.
"Leaders who can't manage", February 1987.
"Entrepreneurial activities of European MBAs",March 1987.
"A cultural view of organizational change",March 1987
"Forecasting and loss functions", Match 1987.
"The Janus Dead: learning from the superiorand subordinate faces of the manager's job",April 1987.
"Multinational corporations as differentiatednetvorks", April 1987.
"Product Standards and Competitive Strategy: AnAnalysis of the Principles", May 1987.
"METAFORECASTING: Vays of improvingForecasting. Accuracy and Usefulness",May 1987.
"Takeover attempts: vhat does the language tellus?, June 1987.
"Managers' cognitive maps for upward anddownward relationships", June 1987.
"Patents and the European biotechnology lag: astudy of large European pharmaceutical firms",June 1987.
"Why the EMS? Dynamic games and the equilibriumpolicy regime, May 1987.
"A new approach to statistical forecasting",June 1987.
"Strategy formulation: the impact of nationalculture", Revised: July 1987.
"Conflicting ideologies: structural andmotivational consequences", August 1987.
"The demand for retail products and thehousehold production model: new views oncomplementarity and substitutability".
87/06 Arun K. JAIN,Christian PINSON andNaresh K. MALHOTRA
87/07 Rolf BANZ andGabriel HAWAWINI
87/08 Manfred KETS DE VRIES
87/09 Lister VICKERY,Mark PILKINGTONand Paul READ
87/10 Andre LAURENT
87/11 Robert FILDES andSpyros MAKRIDAKIS
87/12 Fernando BARTOLOMEand Andre LAURENT
87/13 Sumantra GHOSHALand Nitin NOHRIA
87/14 Landis GABEL
87/15 Spyros MAKRIDAKIS
87/16 Susan SCHNEIDERand Roger DUNBAR
87/17 Andre LAURENT andFernando BARTOLOME
87/18 Reinhard ANGELMAR andChristoph LIEBSCHER
87/19 David BEGG andCharles VYPLOSZ
87/20 Spyros MAKRIDAKIS
87/21 Susan SCHNEIDER
87/22 Susan SCHNEIDER
87/23 Roger BETANCOURTDavid GAUTSCHI
87/24 C.B. DERR andAndr6 LAURENT
87/25 A. K. JAIN,N. K. MALHOTRA andChristian PINSON
87/26 Roger BETANCOURTand David GAUTSCHI
87/27 Michael BURDA
87/28 Gabriel HAVAVINI
87/29 Susan SCHNEIDER andPaul SHRIVASTAVA
"The internal and external careers: atheoretical and cross-cultural perspective",Spring 1987.
"The robustness of MDS configurations in theface of incomplete data", March 1987, Revised:July 1987.
"Demand complementarities, household productionand retail assortments", July 1987.
"Is there a capital shortage in Europe?",August 1987.
"Controlling the interest-rate risk of bonds:an introduction to duration analysis andimmunization strategies", September 1987.
"Interpreting strategic behavior: basicassumptions themes in organizations", September1987
87/41 Gavriel HAVAVINI andClaude VIALLET
87/42 Damien NEVEN andJacques-F. THISSE
87/43 Jean GABSZEVICZ andJacques-F. THISSE
87/44 Jonathan HAMILTON,Jacques-F. THISSEand Anita VESKAMP
87/45 Karel COOL,David JEMISON andIngemar DIERICKX
87/46 Ingemar DIERICKXand Karel COOL
"Seasonality, size premium and the relationshipbetween the risk and the return of Frenchcommon stocks", November 1987
"Combining horizontal and verticaldifferentiation: the principle of max-mindifferentiation", December 1987
"Location", December 1987
"Spatial discrimination: Bertrand vs. Cournotin a model of location choice", December 1987
"Business strategy, market structure and risk-return relationships: a causal interpretation",December 1987.
"Asset stock accumulation and sustainabilityof competitive advantage", December 1987.
87/30 Jonathan HAMILTON "Spatial competition and the Core", August
W. Bentley MACLEOD 1987. 1988and J. F. THISSE
87/31 Martine OUINZII andJ. F. THISSE
87/32 Arnoud DE MEYER
87/33 Yves DOZ andAmy SHUEN
87/34 Kasra FERDOWS andArnoud DE MEYER
87/35 P. J. LEDERER andJ. F. THISSE
87/37 Landis GABEL
87/38 Susan SCHNEIDER
87/40 Carmen MATUTES andPierre REGIBEAU
"On the optimality of central places",September 1987.
"German, French and British manufacturingstrategies less different than one thinks",September 1987.
"A process framework for analyzing cooperationbetween firms", September 1987.
"European manufacturers: the dangers ofcomplacency. Insights from the 1987 Europeanmanufacturing futures survey, October 1987.
"Competitive location on networks underdiscriminatory pricing", September 1987.
"Privatization: its motives and likelyconsequences", October 1987.
"Strategy formulation: the impact of nationalculture", October 1987.
"Product compatibility and the scope of entry",November 1987
88/01 Michael LAVRENCE andSpyros MAKRIDAKIS
88/02 Spyros MAKRIDAKIS
88/03 James TEBOUL
88/04 Susan SCHNEIDER
88/05 Charles VYPLOSZ
88/06 Reinhard ANGELMAR
88/07 Ingemar DIERICKXand Karel COOL
88/08 Reinhard ANGELMARand Susan SCHNEIDER
88/09 Bernard SINCLAIR-DESGAGNe
88/10 Bernard SINCLAIR-DESGAGN6
88/11 Bernard SINCLAIR-DESGAGNe
"Factors affecting judgemental forecasts andconfidence intervals", January 1988.
"Predicting recessions and other turningpoints", January 1988.
"De-industrialize Service for quality", January1988.
"National vs. corporate culture: implicationsfor human resource management", January 1988.
"The swinging dollar: is Europe out of step?",January 1988.
"Les conflits dans les canaux de distribution",January 1988.
"Competitive advantage: a resource basedperspective", January 1988.
"Issues in the study of organizationalcognition", February 1988.
"Price formation and product design throughbidding", February 1988.
"The robustness of some standard auction gameforms", February 1988.
"When stationary strategies are equilibriumbidding strategy: The single-crossingproperty", February 1988.
87/36 Manfred KETS DE VRIES "Prisoners of leadership", Revised versionOctober 1987.
87/39 Manfred KETS DE VRIES "The dark side of CEO succession", November1987
88/12 Spyros MAKRIDAKIS
88/13 Manfred KETS DE VRIES
88/14 Alain NOEL
88/15 Anil DEOLALIKAR andLars-Hendrik ROLLER
88/16 Gabriel HAVAVINI
88/17 Michael BURDA
88/18 Michael BURDA
88/19 M.J. LAWRENCE andSpyros MAKRIDAKIS
88/20 Jean DERMINE,Damien NEVEN andJ.F. THISSE
88/21 James TEBOUL
88/22 Lars-Hendrik ROLLER
88/23 Sjur Didrik FLAMand Georges ZACCOUR
88/24 B. Espen ECKBO andHerwig LANGOHR
88/25 Everette S. GARDNERand Spyros MAKRIDAKIS
88/26 Sjur Didrik FLAMand Georges ZACCOUR
88/27 Murugappa KRISHNANLars-Hendrik ROLLER
"Business firms and managers in the 2Istcentury", February 1988
"Alexithymia in organizational life: theorganization man revisited", February 1988.
"The interpretation of strategies: a study ofthe impact of CEOs on the corporation",March 1988.
"The production of and returns from industrialinnovation: an econometric analysis for adeveloping country", December 1987.
"Market efficiency and equity pricing:international evidence and implications forglobal investing", March 1988.
"Monopolistic competition, costs of adjustmentand the behavior of European employment",September 1987.
"Reflections on "Wait Unemployment" inEurope", November 1987, revised February 1988.
"Individual bias in judgements of confidence",March 1988.
"Portfolio selection by mutual funds, anequilibrium model", March 1988.
"De-industrialize service for quality",March 1988 (88/03 Revised).
"Proper Quadratic Functions with an Applicationto AT&T", May 1987 (Revised March 1988).
"Equilibres de Nash-Cournot dans le march6europeen du gaz: un cas o6 les solutions enboucle ouverte et en feedback coincident",Mars 1988
"Information disclosure, means of payment, andtakeover premia. Public and Private tenderoffers in France", July 1985, Sixth revision,April 1988.
"The future of forecasting", April 1988.
"Semi-competitive Cournot equilibrium inmultistage oligopolies", April 1988.
"Entry game with resalable capacity",April 1988.
88/29 Naresh K. MALHOTRA,Christian PINSON andArun K. JAIN
88/30 Catherine C. ECKELand Theo VERMAELEN
88/31 Sumantra GHOSHAL andChristopher BARTLETT
88/32 Kasra FERDOWS andDavid SACKRIDER
88/33 Mihkel M. TOMBAK
88/34 Mihkel M. TOMBAK
88/35 Mihkel M. TOMBAK
88/36 Vikas TIBREVALA andBruce BUCHANAN
88/37 Murugappa KRISHNANLars-Hendrik ROLLER
88/38 Manfred KETS DE VRIES
88/39 Manfred KETS DE VRIES
88/40 Josef LAKONISHOK andTheo VERMAELEN
88/41 Charles WYPLOSZ
88/42 Paul EVANS
88/43 B. SINCLAIR-DESGAGNE
88/44 Essam MAHMOUD andSpyros MAKRIDAKIS
88/45 Robert KORAJCZYKand Claude VIALLET
88/46 Yves DOZ andAmy SHUEN
"Consumer cognitive complexity and thedimensionality of multidimensional scalingconfigurations", May 1988.
"The financial fallout from Chernobyl: riskperceptions and regulatory response", May 1988.
"Creation, adoption, and diffusion ofinnovations by subsidiaries of multinationalcorporations", June 1988.
"International manufacturing: positioningplants for success", June 1988.
"The importance of flexibility inmanufacturing", June 1988.
"Flexibility: an important dimension inmanufacturing"
"A strategic analysis of investment in flexiblemanufacturing systems", July 1988.
"A Predictive Test of the NBD Model thatControls for Non-stationarity", June 1988.
"Regulating Price-Liability Competition ToImprove Welfare", July 1988.
"The Motivating Role of Envy : A ForgottenFactor in Management, April 88.
"The Leader as Mirror : Clinical Reflections",July 1988.
"Anomalous price behavior around repurchasetender offers", August 1988.
"Assymetry in the EMS: intentional orsystemic?", August 1988.
"Organizational development in thetransnational enterprise", June 1988.
"Group decision support systems implementBayesian rationality", September 1988.
"The state of the art and future directionsin combining forecasts", September 1988.
"An empirical investigation of internationalasset pricing", November 1986, revised August1988.
"From intent to outcome: a process frameworkfor partnerships", August 1988.
, June 1988.
88/28 Sumantra G8OSHAL and
"The multinational corporation as a network:C. A. BARTLETT
perspectives from interorganizational theory",May 1988.
88/47 Alain BULTEZ,Els GIJSBRECHTS,Philippe NAERT andPiet VANDEN ABEELE
88/48 Michael BURDA
88/49 Nathalie DIERKENS
88/50 Rob WEITZ andArnoud DE MEYER
88/51 Rob VEITZ
88/52 Susan SCHNEIDER andReinhard ANGELMAR
88/53 Manfred KETS DE VRIES
88/54 Lars-Hendrik ROLLERand Mihkel M. TOMBAK
88/55 Peter BOSSAERTSand Pierre HILLION
88/56 Pierre HILLION
88/57 Wilfried VANHONACKERand Lydia PRICE
88/58 B. SINCLAIR-DESGAGNEand Mihkel M. TOMBAK
88/59 Martin KILDUFF
88/60 Michael BURDA
88/61 Lars-Hendrik ROLLER
88/62 Cynthia VAN HULLE,Theo VERMAELEN andPaul DE WOUTERS
"Asymmetric cannibalism between substituteitems listed by retailers", September 1988.
"Reflections on 'Wait unemployment' inEurope, II", April 1988 revised September 1988.
"Information asymmetry and equity issues",September 1988.
"Managing expert systems: from inceptionthrough updating", October 1987.
"Technology, work, and the organization: theimpact of expert systems", July 1988.
"Cognition and organizational analysis: who'sminding the store?", September 1988.
"Whatever happened to the philosopher-king: theleader's addiction to power, September 1988.
"Strategic choice of flexible productiontechnologies and welfare implications",October 1988
"Method of moments tests of contingent claimsasset pricing models", October 1988.
"Size-sorted portfolios and the violation ofthe random walk hypothesis: Additionalempirical evidence and implication for testsof asset pricing models", June 1988.
"Data transferability: estimating the responseeffect of future events based on historicalanalogy", October 1988.
"Assessing economic inequality", November 1988.
"The interpersonal structure of decisionmaking: a social comparison approach toorganizational choice", November 1988.
"Is mismatch really the problem? Some estimatesof the Chelvood Gate II model with US data",September 1988.
"Modelling cost structure: the Bell Systemrevisited", November 1988.
"Regulation, taxes and the market for corporatecontrol in Belgium", September 1988.
88/63 Fernando NASCIMENTOand Vilfried R.VANHONACKER
88/64 Kasra FERDOVS
88/65 Arnoud DE MEYERand Kasra FERDOWS
88/66 Nathalie DIERKENS
88/67 Paul S. ADLER andKasra FERDOWS
1989
89/01 Joyce K. BYRER andTavfik JELASSI
89/02 Louis A. LE BLANCand Tavfik JELASSI
89/03 Beth H. JONES andTavfik JELASSI
89/04 Kasra FERDOWS andArnoud DE MEYER
89/05 Martin KILDUFF andReinhard ANGELMAR
89/06 Mihkel M. TOMBAK andB. SINCLAIR-DESGAGNE
89/07 Damien J. NEVEN
89/08 Arnoud DE MEYER andHellmut SCHUTTE
89/09 Damien NEVEN,Carmen MATUTES andMarcel CORSTJENS
89/10 Nathalie DIERKENS,Bruno GERARD andPierre MILLION
"Strategic pricing of differentiated consumerdurables in a dynamic duopoly: a numericalanalysis", October 1988.
"Charting strategic roles for internationalfactories", December 1988.
"Quality up, technology down", October 1988.
"A discussion of exact measures of informationassymetry: the example of Myers and Majlufmodel or the importance of the asset structureof the firm", December 1988.
"The chief technology officer", December 1988.
"The impact of language theories on DSSdialog", January 1989.
"DSS software selection: a multiple criteriadecision methodology", January 1989.
"Negotiation support: the effects of computerintervention and conflict level on bargainingoutcome", January 1989."Lasting improvement in manufacturingperformance: In search of a new theory",January 1989.
"Shared history or shared culture? The effectsof time, culture, and performance oninstitutionalization in simulatedorganizations", January 1989.
"Coordinating manufacturing and businessstrategies: I", February 1989.
"Structural adjustment in European retailbanking. Some view from industrialorganisation", January 1989.
"Trends in the development of technology andtheir effects on the production structure inthe European Community", January 1989.
"Brand proliferation and entry deterrence",February 1989.
"A market based approach to the valuation ofthe assets in place and the growthopportunities of the firm", December 1988.
89/11 Manfred KETS DE VRIESand Alain NOEL
89/12 Wilfried VANHONACKER
89/13 Manfred KETS DE VRIES
89/14 Reinhard ANGELMAR
89/15 Reinhard ANGELMAR
89/16 Wilfried VANHONACKER,Donald LEHMANN andFareena SULTAN
89/17 Gilles AMADO,Claude FAUCHEUX andAndre LAURENT
89/18 Srinivasan BALAK-RISHNAN andMitchell KOZA
89/19 Wilfried VANHONACKER,Donald LEHMANN andFareena SULTAN
89/20 Wilfried VANHONACKERand Russell WINER
89/21 Arnoud de MEYER andKasra FERDOWS
89/22 Manfred KETS DE VRIESand Sydney PERZOW
89/23 Robert KORAJCZYK andClaude VIALLET
89/24 Martin KILDUFF andMitchel ABOLAFIA
89/25 Roger BETANCOURT andDavid GAUTSCHI
89/26 Charles BEAN,Edmond MALINVAUD,Peter BERNHOLZ,Francesco GIAVAllIand Charles WYPLOSZ
"Understanding the leader-strategy interface:application of the strategic relationshipinterview method", February 1989.
"Estimating dynamic response models when thedata are subject to different temporalaggregation", January 1989.
"The impostor syndrome: a disquietingphenomenon in organizational life", February1989.
"Product innovation: a tool for competitiveadvantage", March 1989.
"Evaluating a firm's product innovationperformance", March 1989.
"Combining related and sparse data in linearregression models", February 1989.
"Changement ouganisationnel et realnessculturelles: contrastes franco-americains",March 1989.
"Information asymmetry, market failure andjoint-ventures: theory and evidence",March 1989
"Combining related and sparse data in linearregression models",Revised March 1989
"A rational random behavior model of choice",Revised March 1989
"Influence of manufacturing improvementprogrammes on performance", April 1989
"What is the role of character inpsychoanalysis? April 1989
"Equity risk premia and the pricing of foreignexchange risk" April 1989
"The social destruction of reality:Organisational conflict as social drama"April 1989
"Two essential characteristics of retailmarkets and their economic consequences"March 1989
"Macroeconomic policies for 1992: thetransition and after", April 1989
89/27 David KRACKHARDT andMartin KILDUFF
89/28 Martin KILDUFF
89/29 Robert GOGEL andJean-Claude LARRECHE
89/30 Lars-Hendrik ROLLERand Mihkel M. TOMBAK
89/31 Michael C. BURDA andStefan GERLACH
89/32 Peter HAUG andTawfik JELASSI
89/33 Bernard SINCLAIR-DESGAGNE
89/34 Sumantra GHOSHAL andNittin NOHRIA
89/35 Jean DERMINE andPierre BILLION
89/36 Martin KILDUFF
89/37 Manfred KETS DE VRIES
89/38 Manfrd KETS DE VRIES
89/39 Robert KORAJCZYK andClaude VIALLET
89/40 Balaji CHAKRAVARTHY
89/41 B. SINCLAIR-DESGAGNEand Nathalie DIERKENS
89/42 Robert ANSON andTawfik JELASSI
89/43 Michael BURDA
89/44 Balaji CHAKRAVARTHYand Peter LORANGE
89/45 Rob WEITZ andArnoud DE MEYER
"Friendship patterns and cultural attributions:the control of organizational diversity",April 1989
"The interpersonal structure of decisionmaking: a social comparison approach toorganizational choice", Revised April 1989
"The battlefield for 1992: product strengthand geographic coverage", May 1989
"Competition and Investment in FlexibleTechnologies", May 1989
"Intertemporal prices and the US trade balancein durable goods", July 1989
"Application and evaluation of a multi-criteriadecision support system for the dynamicselection of U.S. manufacturing locations",May 1989
"Design flexibility in monopsonisticindustries", May 1989
"Requisite variety versus shared values:managing corporate-division relationships inthe M-Form organisation", May 1989
"Deposit rate ceilings and the market value ofbanks: The case of France 1971-1981", May 1989
"A dispositional approach to social networks:the case of organizational choice", May 1989
"The organisational fool: balancing a leader'shubris", May 1989
"The CEO blues", June 1989
"An empirical investigation of internationalasset pricing", (Revised June 1989)
"Management systems for innovation andproductivity", June 1989
"The strategic supply of precisions", June 1989
"A development framework for computer--supportedconflict resolution", July 1989
"A note on firing costs and severance benefitsin equilibrium unemployment", June 1989
"Strategic adaptation in multi-business firms",June 1989
"Managing expert systems: a framework and casestudy", June 1989
89/46 Marcel CORSTJENS,Carmen MATUTES andDamien NEVEN
89/47 Manfred KETS DE VRIESand Christine MEAD
89/48 Damien NEVEN andLars-Hendrik ROLLER
89/49 Jean DERMINE
89/50 Jean DERMINE
89/51 Spyros MAKRIDAKIS
89/52 Arnoud DE MEYER
89/53 Spyros MAKRIDAKIS
"Entry Encouragement", July 1989
"The global dimension in leadership andorganization: issues and controversies",April 1989
"European integration and trade flows",August 1989
"Home country control and mutual recognition",July 1989
"The specialization of financial institutions,the EEC model", August 1989
"Sliding simulation: a new approach to timeseries forecasting", July 1989
"Shortening development cycle times: amanufacturer's perspective", August 1989
"Why combining works?", July 1989
"Complexity of simulation models: A graphtheoretic approach". November 1989
"MARS: A mergers and acquisitions reasoningsystem", November 1989
"On the regulation of procurement bids",November 1989
"Market microstructure effects of governmentintervention in the foreign exchange market",December 1989
89/64 Enver YUCESAN and(TM) Lee SCHRUBEN
89/65 Soumitra DUTTA and(TM, Piero BONISSONEAC, PIN)
89/66 B. SINCLAIR-DESGAGNE(TM,EP)
89/67 Peter BOSSAERTS and(PIN) Pierre HILLION
89/54 S. BALAKRISHNANand Mitchell KOZA
89/55 H. SCHUTTE
89/56 Wilfried VANHONACKERand Lydia PRICE
89/57 Taekvon KIM,Lars-Hendrik ROLLERand Mihkel TOMBAK
89/58 Lars-Hendrik ROLLER(EP,TM) and Mihkel TOMBAK
89/59 Manfred KETS DE VRIES,(OB) Daphna ZEVADI,
Alain NOEL andMihkel TOMBAK
89/60 Enver YUCESAN and(TN) Lee SCHRUBEN
89/61 Susan SCHNEIDER and(All) Arnoud DE MEYER
89/62 Arnoud DE MEYER(TM)
89/63 Enver YUCESAN and(TM) Lee SCHRUBEN
"Organisation costs and a theory of jointventures", September 1989
"Euro-Japanese cooperation in informationtechnology", September 1989
"On the practical usefulness of meta-analysisresults", September 1989
"Market growth and the diffusion ofmultiproduct technologies", September 1989
"Strategic aspects of flexible productiontechnologies", October 1989
"Locus of control and entrepreneurship: athree-country comparative study", October 1989
"Simulation graphs for design and analysis ofdiscrete event simulation models", October 1989
"Interpreting and responding to strategicissues: The impact of national culture",October 1989
"Technology strategy and international R 6 Doperations", October 1989
"Equivalence of simulations: A graph theoreticapproach", November 1989
1990
B. SINCLAIR-DESGAGNE "Unavoidable Mechanisms', January 1990
90/16FIN
90/17
FIN
Richard LEVICH andIngo WALTER
Nathalie DIERKENS
"Tax-Driven Regulatory Drag: EuropeanFinancial Centers in the 1990's", January 1990
"Information Asymmetry and Equity Issues",Revised January 1990
90/01TM/EP/AC
90/02 Michael BURDA "Monopolistic Competition, Costs of
EP Adjustment, and the Behaviour of European 90/18 Vilfried VANHONACKER "Managerial Decision Rules and the EstimationManufacturing Employment", January 1990 MKT of Dynamic Sales Response Models", Revised
January 199090/03 Arnoud DE MEYER "Management of Communication in International
TM Research and Development", January 1990 90/19 Beth JONES and "The Effect of Computer Intervention and Task
90/04FIN/EP
Gabriel HAVAVINI and "The Transformation of the European Financial
Eric RAJENDRA Services Industry: From Fragmentation to
TM Tavfik JELASSI Structure on Bargaining Outcome", February1990
Integration", January 1990
90/05 Gabriel HAVAVINI and "European Equity Markets: Toward 1992 and
90/20TM
Tavfik JELASSI,Gregory KERSTEN and
"An Introduction to Group Decision andNegotiation Support", February 1990
FIN/EP Bertrand JAGOUILLAT Beyond", January 1990 Stanley ZIONTS
90/06 Gabriel HAVAVINI and "Integration of European Equity Markets: 90/21 Roy SMITH and "Reconfiguration of the Global Securities
FIN/EP Eric RAJENDRA Implications of Structural Change for Key FIN Ingo WALTER Industry in the 1990's", February 1990Market Participants to and Beyond 1992",
January 1990 90/22 Ingo WALTER "European Financial Integration and ItsFIN Implications for the United States", February
90/07 Gabriel HAVAVINI "Stock Market Anomalies and the Pricing of 1990FIN/EP Equity on the Tokyo Stock Exchange", January
1990 90/23 Damien NEVEN "EEC Integration towards 1992: Some
90/08 Tavfik JELASSI and "Modelling with MCDSS: Vhat about Ethics?",EP/SM Distributional Aspects", Revised December 1989
TM/EP B. SINCLAIR-DESGAGNE January 1990 90/24 Lars Tyge NIELSEN "Positive Prices in CAPM", January 1990FIN/EP
90/09EP/FIN
Alberto GIOVANNINI "Capital Controls and International Tradeand Jae VON PARK Finance", January 1990
90/25 Lars Tyge NIELSEN "Existence of Equilibrium in cAPM", January
90/10 Joyce BRYER and "The Impact of Language Theories on DSS FIN/EP 1990
TM Tavfik JELASSI Dialog", January 199090/26 Charles KADUSHIN and "Why networking Pails: Double Binds and the
90/11TM
Enver YUCESAN "An Overview of Frequency Domain Methodology
for Simulation Sensitivity Analysis",January 1990
0B/BP
90/27
Michael BRINE
Abbas FOROUCHI and
Limitations of Shadow Networks", February 1990
"NSS Solutions to Major Negotiation Stumbling
90/12
EF
Michael BURDA "Structural Change, Unemployment Benefits and
nigh Unemployment: A U.S.-EuropeanComparison", January 1990
TM
90/28
TM
Tavfik JELASSI
Arnoud DE MEYER
Blocks", February 1990
"The Manufacturing Contribution to
Innovation". February 1990
90/13 Soumitra DUTTA and "Approximate Reasoning about Temporal
TM Shashi SHEKHAR Constraints in Real Time Planning and Search',
January 1990
90/29
FIN/ACNathalie DIERKENS "A Discussion .7 1- Correct Measures of
Information Asymmetry", January 1990
90/14 Albert ANGEHRN and "Visual Interactive Modelling and Intelligent 90/30 Lars Tyge NIELSEN "The Expected Utility of Portfolios of
TM Hans-Jakob LOTHI DSS: Putting Theory Into Practice",January 1990
FIN/EP Assets". March 1990
90/15 Arnoud DE MEYER, "The Internal Technological Renewal of a 90/31 David CAUTSCHI and "What Determines U.S. Retail Margins?",TM Dirk DESCHOOLMEESTER, Business Unit With a Mature Technology",
Rudy MOENAERT and January 1990MKT/EP Roger BETANCOURT February 1990
Jan BARBE