Foreign buyout of international equity joint ventures in China: When does performance improve?

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Date
2021-06-13
Authors
Duanmu, Jing-Lin
Lawton, Thomas C.
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Elsevier B.V.
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Abstract
Since the early 2000s, Sino-foreign equity joint ventures (JVs) have declined sharply as a predominant strategy for multinational enterprises (MNEs) to enter and operate in China. We study one of the contributory factors, foreign buyout, and its performance implications. By applying incomplete contract theory and an agency perspective, we provide micro evidence that superior post buyout performance is observed in converted wholly-owned subsidiaries (WOSs) with efficiency-seeking operations and subsequent CEO succession. The findings extend our understanding that ownership per se does not guarantee performance improvement. Instead, it is the alignment between ownership and the ownerâ s inputs, and between ownership and the ownerâ s managerial control, that give rise to performance improvement.
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Keywords
International equity joint venture , Foreign buyout , Firm performance , CEO succession , Agency theory , Incomplete contract theory , Efficiency-seeking FDI , China
Citation
Duanmu, J.-L. and Lawton, T. C. (2021) 'Foreign buyout of international equity joint ventures in China: When does performance improve?', Journal of World Business, 56(5), 101243 (13pp). doi: 10.1016/j.jwb.2021.101243
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© 2021, Elsevier Inc. All rights reserved. This manuscript version is made available under the CC BY-NC-ND 4.0 license.