Wealth effect of international joint ventures: a comparison of Hong Kong and U.S. investments in China

Abstract

This study compares the wealth effect of international joint ventures in China by Hong Kong and US firms in the 1989-95 period. We document significant differences in the type and size of the joint ventures set up by the two sample firms Evidence also shows that while these ventures are wealth maximizing for both Hong Kong and US fimrs, the determinants of the wealth effect are substantially different in the two samples. Larger multinational network (in non-Asian regions) is associated with significantly larger gains in the Hong Kong sample while it has no significant effect for the U S. firms The number of joint venture deals in China which proxies for the experience of doing business in China, on the other hand, is positively related to the gains in joint ventures for the US. firms but it has no effect for the Hong Kong firms Gains in the US. sample are also smaller for the high-tech joint ventures and for firms with a large number of subsidiaries in South East Asia. However, the wealth effects are not significantly different between the two samples after controlling for the venture-specific and firm-specific variables. Our evidence supports the theory that firms have different comparative advantages based on the domicile of their country and these play a major role in determining the wealth effects of international joint ventures.