Market reaction to international joint venture announcement: The case of developed versus less developed countries |
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Authors: | Pochara Theerathorn Peter Wright Bevalee Pray |
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Institution: | 1. The faculty of the Department of Finance, Insurance, and Real Estate , Memphis State University;2. The faculty of the Department of Management , Memphis State University |
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Abstract: | Joint ventures across national borders are more advantageous than other forms of international diversification because they afford a better control of technology usage, require a minimal level of cash investment, and present a more effective means of avoiding intervention from the host government. All of these characteristics make international joint ventures uniquely suitable for investments in less developed countries. This paper ascertains whether investors agree with the above sentiment by examining the stock market response to 41 announcements of international joint ventures during 1985-1987, using the event study method. It was found that the stock of the multinational corporations announcing international joint ventures generally outperforms the market In addition, the market reaction to the announcement of international joint ventures in less developed countries is, on average, more favorable than its reaction to the announcement of international joint ventures in developed countries. |
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