Franco-Chinese Joint-Venture Formation and Shareholder Wealth

The main purpose of this article is to test the stock market reaction to Franco-Chinese joint venture announcements and to determine whether it is correlated with joint venture-specific and partner-specific factors. Certain factors specific either to Franco-Chinese joint ventures' characteristics (such as coastal or inland location of French investors in China, capital ownership of French and Chinese partners in the joint ventures, announcement date, business activity of the Franco-Chinese joint ventures) or to French partners (such as their experience in managing Franco-Chinese joint ventures, their international, European experience, and more particularly their experience of Asia) will be analysed with respect to their shareholder value creation. A research sample was prepared from the publication of information on Franco-Chinese joint venture announcements in the French daily newspapers Les Echos and La Tribune between 1994 and 2000 (seven years were analysed). It is important to stress that the announcements used in this sample corresponded to the sole formation of joint ventures. This research sample was made up of 47 Franco-Chinese joint venture announcements for which the relevant abnormal returns (AAR and CAAR) were evaluated. A negative and significant valuation effect was reported for Franco-Chinese joint venture announcements for a reduced event window spanning 7 days around the day of announcement. Among the eight different variables associated with shareholder value creation, only two of them appear to be statistically significant: announcement date and international experience of French partners. First, two opposite time trends were stated in the stock market reaction (negative reaction from 1994 to 1997 and positive from 1998 to 2000). Second, French companies possessing high international experience benefit from an important and positive stock market reaction.