Ownership level choice and value creation in international joint ventures: The role of investor protection

We examine the choice of ownership level and its impact on the value to the US partner in two-party international joint ventures (IJV). Using a large sample of IJVs, we find that the level of economic development of the foreign country influences the ownership choice of the US partner, but the foreign country's origin of legal system does not. The US partner gains more value when there is a dominant party in the transaction: the dominant partner possibly minimizes agency costs and provides greater stability to the joint venture. Partner, deal, and country characteristics influence the created value. Unequal ownership IJVs with English and French law countries bring more value to the US firm compared to unequal ownership in German law countries, and compared to equal ownership structure. The difference in value gain between majority and minority ownership levels is statistically insignificant across all legal systems, thereby providing additional support to the proposition that the presence of a dominant partner, whether of US or foreign origin, enhances the value of the IJV.