Agency hazard, managerial incentives, and the wealth effects of joint venture investmentsJung-Ho Lai, Li-Yu Chen and Carl R. Chen International Review of Financial Analysis, 2017, vol. 52, issue C, 190-202 Abstract: Grounded in agency theory, this study explores whether the separation of ownership (by shareholders) and control (by managers) in firms is an essential determinant of the valuation effect of joint ventures (JVs). This is achieved by examining the efficacy of incentive alignment mechanisms and their contingency effects. Based on a sample of 963 U.S. firms' JV investments, the results show that poor JV performance is linked to lower levels of executive ownership and reduced equity compensation. The possibility of managers acting for their own self-interest in corporate JV investments is further supported by the stronger positive performance effect of incentive alignment mechanisms documented when firms have a higher level of free cash flow or undertake JVs in unrelated business domains. Both performance measures of short-run announcement effects and long-run stock returns yield similar results. Our results underscore the importance of governing executives' self-interested actions in their JV engagements. Keywords: Joint ventures; Agency theory; Corporate governance; Managerial incentive (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:52:y:2017:i:c:p:190-202 DOI: 10.1016/j.irfa.2017.06.001 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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