When do wholly owned subsidiaries perform better than joint ventures?
Article first published online: 7 SEP 2012
Copyright © 2012 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 34, Issue 3, pages 317–337, March 2013
How to Cite
Chang, S.-J., Chung, J. and Moon, J. J. (2013), When do wholly owned subsidiaries perform better than joint ventures?. Strat. Mgmt. J., 34: 317–337. doi: 10.1002/smj.2016
- Issue published online: 22 JAN 2013
- Article first published online: 7 SEP 2012
- Accepted manuscript online: 23 AUG 2012 10:26AM EST
- Manuscript Revised: 21 SEP 2011
- Manuscript Received: 11 NOV 2010
- joint venture termination;
- entry mode choice;
- wholly owned subsidiaries;
- subsidiary performance;
- transaction cost theory
This study explores when wholly owned subsidiaries outperform joint ventures with local partners. In order to avoid the endogeneity problem inherent in foreign subsidiaries' operating mode decisions that might confound performance measurement, we employ the propensity score matching method, along with the difference-in-differences approach, and compare the performances of joint ventures turned wholly owned subsidiaries vis-à-vis continuing joint ventures. Based on foreign subsidiaries' financial data in China for 1998–2006, we find strong evidence that converted wholly owned subsidiaries outperform continuing joint ventures in industries characterized by high levels of intangible assets such as technology or brand, after controlling for factors that may affect the conversion decision. This finding is consistent with the prediction of transaction cost theory. Copyright © 2012 John Wiley & Sons, Ltd.