CENTER FOR INTERNATIONAL BUSINESS EDUCATION AND RESEARCH
(GT CIBER)
WORKING PAPER SERIES
95022

Structuring International Joint Ventures : Bargaining, Equity Participations, and Private Informations

by T.H. Noe, M.J. Rebello & M. M. Shrikhande

Abstract

We examine the role of bargaining power, informational asymmetry, and equity participation restrictions on the division of the gains from cooperation between multinational and domestic firms. When the bargaining advantage rests with the multinational, equity participation restrictions can increasethe profits to domestic firms and encourage sub-optimal investment policies. Overinvestment occurs when the multinational's bargaining advantage is reinforced by an informational advantage, while underinvestment occurs when the domestic firm possesses the informational advantage. Equity participation restrictions, however, do not affect investment policies or the division of gains from joint ventures when the bargaining advantage rests with the domestic firm.