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The potential for expropriation through joint ventures
Author(s) -
Case Spencer A.,
Lee D. Scott,
Martin John D.
Publication year - 2006
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2006.07.003
Subject(s) - expropriation , venture capital , business , joint venture , equity (law) , social venture capital , value (mathematics) , joint (building) , monetary economics , value creation , finance , economics , commerce , market economy , computer science , law , architectural engineering , machine learning , political science , engineering
Abstract We examine the potential expropriation of a firm's intellectual capital that results from joint venture agreements when a firm's joint venture partner becomes the target of an acquisition attempt. We find that: (1) non‐targeted joint venture partners often suffer losses in value upon the announcement of the acquisition; (2) the magnitude of the loss increases with the R&D intensity of the non‐targeted joint venture partner; and (3) average bidder returns are less negative for acquirers if the affected joint venture partners report R&D spending and are in the same line of business as the acquirer. Our estimate of the average loss is $843 million per firm, roughly 3% of the non‐targeted firm's pre‐announcement equity value. Our evidence suggests a previously unrecognized merger motive in that joint ventures expose a firm's intellectual capital to the risk of expropriation.