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The assignment of call option rights between partners in international joint ventures
Author(s) -
Tong Tony W.,
Li Sali
Publication year - 2013
Publication title -
strategic management journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 11.035
H-Index - 286
eISSN - 1097-0266
pISSN - 0143-2095
DOI - 10.1002/smj.2061
Subject(s) - call option , alliance , complementarity (molecular biology) , equity (law) , business , joint venture , ex ante , international joint venture , incomplete contracts , microeconomics , economics , commerce , finance , incentive , political science , law , macroeconomics , biology , genetics
We examine call option rights as a contractual clause in international joint ventures ( IJVs ) and propose that the assignment of the call option right in an IJV is determined by certain ex ante asymmetries between the partners. Results show that between the two partners in an IJV , the firm with greater complementarity with the venture and greater prior IJV experience is more likely to hold the call option right; in addition, the firm's contractual choice on the call option right and its ownership choice on a greater initial equity stake are substitutive. Our focus on explicit call options advances the real options theory of collaborative agreements, and our results also highlight that option rights be considered an important part of alliance design . Copyright © 2013 John Wiley & Sons, Ltd.