International Joint Ventures and Political Risk

• Main Authors: Janakiramanan, Sundaram, Asjeet S., Lamba
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2004
• Subjects: International joint ventures; Political risk; Shareholder wealth; Event study; Finance and Financial Management; Portfolio and Security Analysis
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/2350; https://ink.library.smu.edu.sg/context/lkcsb_research/article/3349/viewcontent/auto_convert.pdf
• Institution: Singapore Management University

In recent years, a number of researchers have examined the existence and source of shareholder wealth effects around announcements of international joint ventures. The results of these studies are mixed with no clear answers as to when and why investors attach value to firms using joint ventures to enter overseas markets. In this context, we examine the shareholder wealth effects for 92 international joint venture announcements made by Australian firms during June 1988 - December 1997. We find that, on average, shareholders of firms announcing joint ventures realize an abnormal return of +1.65% over the two-day announcement period of days (-1, 0). We also find that the wealth gains are much higher for international joint ventures undertaken in highrisk countries versus low-risk countries. This finding is consistent with the theory that international joint ventures can be structured in ways that allow the foreign partner to protect itself against expropriation risk and hence increase their value to shareholders.