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Structuring International Cooperative Ventures

Thomas H. Noe1; Michael J. Rebello2; Milind M. Shrikhande2

1 Tulane University · 2 Georgia State University

Review of Financial Studies 2002

We examine the effect of bargaining power and informational asymmetry on the design of international cooperative ventures in the presence of restrictions on equity participation and investment. When the bargaining advantage rests with the multinational, equity participation restrictions can increase the profits to domestic firms and encourage suboptimal 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. In contrast, when the bargaining advantage rests with the domestic firm, equity participation restrictions do not affect investment levels. Copyright 2002, Oxford University Press.

DOI
10.1093/rfs/15.4.1251
Volume
15 (4)
Pages
1251-1282
Language
en
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