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Corporate restructuring through transitory joint ventures

Author: Williamson, Peter J. ; Nanda, A.INSEAD Area: Asian Business and Comparative Management Series: Working Paper ; 95/81/EAC Publisher: Fontainebleau : INSEAD, 1995.Language: EnglishDescription: 36 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: This paper proposes that joint ventures can be used as transitory organizations that aid in the process of corporate restructuring.If the quality of a business is not observable by an outsider, then a firm that is trying to sell the business faces the problem of adverse selection. A game-theoretic model is used to show that this problem can be alleviated if the restructurer converts the business into a transitory joint venture with the potential buyer. Transitory joint venturing is the optimal way to achieve corporate restructuring if joint venture administrative cost is moderately high and if a large proportion of businesses that are up for sale are of low quality. Case studies of corporate restructuring through transitory joint ventures are used to illustrate and extend these arguments
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This paper proposes that joint ventures can be used as transitory organizations that aid in the process of corporate restructuring.If the quality of a business is not observable by an outsider, then a firm that is trying to sell the business faces the problem of adverse selection. A game-theoretic model is used to show that this problem can be alleviated if the restructurer converts the business into a transitory joint venture with the potential buyer. Transitory joint venturing is the optimal way to achieve corporate restructuring if joint venture administrative cost is moderately high and if a large proportion of businesses that are up for sale are of low quality. Case studies of corporate restructuring through transitory joint ventures are used to illustrate and extend these arguments

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