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Incomplete contracts, ownership rights, and the optimality of equity joint ventures

Dasgupta, Sudipto and Tao, Zhigang (1998) Incomplete contracts, ownership rights, and the optimality of equity joint ventures. Journal of Economic Behavior and Organization, 37 (4). pp. 391-413. ISSN 0167-2681

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Abstract

Firms engaged in the pooling of complementary skills often choose the Equity Joint Venture (EJV) over alternative profit-sharing arrangements. This paper addresses the issue of how equity shares are different from profit shares. It is shown that, in settings of contractual incompleteness, marketable equity ownership, when compared to non-transferable profit-sharing contracts, provides better ex ante incentives to the parties involved by mitigating ex post hold-up problems. Among other things, the prevalence of the 51–49 or 50–50 EJV in which one party has 51 percent (or 50 percent) equity shares is explained.

Item Type: Article
Journal or Publication Title: Journal of Economic Behavior and Organization
Uncontrolled Keywords: Incomplete contracts ; Equity shares ; Profit-sharing contracts ; Equity joint ventures ; Wholly-owned subsidiaries
Subjects:
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 74568
Deposited By: ep_importer_pure
Deposited On: 07 Jul 2015 13:40
Refereed?: Yes
Published?: Published
Last Modified: 08 Sep 2017 00:34
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/74568

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