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Information asymmetry, adverse selection and joint-ventures: theory and evidence

Author: Balakrishnan, Srinivasan ; Koza, Mitchell P.INSEAD Area: Strategy Series: Working Paper ; 90/32/SM Publisher: Fontainebleau : INSEAD, 1990.Language: EnglishDescription: 28 p.Type of document: INSEAD Working Paper Online Access: Click here Abstract: It is proposed that intermediate forms of organization like joint-ventures are superior to markets and hierarchies when the costs of valuing complementary assets are non-trivial. By allowing piece-meal transactions under shared ownership and control, joint-ventures can reduce these costs significantly. This theory is supported by the results of a cross-sectional analysis of the abnormal returns to the parent firms in 64 joint-venture announcements
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It is proposed that intermediate forms of organization like joint-ventures are superior to markets and hierarchies when the costs of valuing complementary assets are non-trivial. By allowing piece-meal transactions under shared ownership and control, joint-ventures can reduce these costs significantly. This theory is supported by the results of a cross-sectional analysis of the abnormal returns to the parent firms in 64 joint-venture announcements

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