A Rexamination of the Motives and Gains inJoint Ventures

Abstract

We distinguish between horizontal and vertical jointventures, and find correspondingly differentvaluation effects. Horizontal joint ventures createsynergistic gains that are shared by the partners.In contrast, vertical joint ventures generate gainsonly for suppliers. This is similar to the patter wefind for simple contracts, which suggests economicsimiliarities between vertical joint ventures andcontracts. Analysing firms' choices between thesecontracting options, we find that firms choosevertical joint ventures over simple contracts whenpotential hold-up problems are severe and whensuppliers face finance constraints. The results dnot support a risk-sharing motive for jointventures.