Institutional differences and arbitration mechanisms in international joint ventures

Research summary: We theoretically and empirically study the effects of legal institutions on the inclusion of arbitration provisions in international joint venture (IJV) contracts. Legal institutions offer a public trilateral forum to handle interpartner disputes. However, these institutions function differently across countries, which can impede IJV partners from resolving disputes effectively through court systems. Alternatively, partners can take advantage of private trilateral resolution mechanisms in the form of arbitration. We argue and demonstrate that differences among partners' home country legal institutions regarding the legal traditions, as well as the importance of procedures and costs imposed in these countries for enforcing contracts, increase the likelihood of choosing arbitration over litigation. We also compare results for partners' recourse to IJV boards as a private, bilateral means of addressing conflicts. Managerial summary: IJVs are powerful levers for market expansion and access to resources and capabilities. The risks of corrosive disputes caused by conflicting interests or misunderstandings among partners are nonetheless far from being negligible. Our study helps decision makers and managers increase their understanding of the options and remedies available for resolving disputes. We consider three mechanisms in particular: public courts, arbitration, and the board of directors. Findings show that considering the partners' home country legal environments but also the discrepancies between these environments is essential when it comes to giving preference to arbitration over public courts. Findings also suggest that decisions related to internal private ordering (i.e., relying on the JV board of directors) are driven by the exchange characteristics more than by institutional considerations

Administrative mechanisms in alliance governance

In this dissertation, I study instruments of administrative control and their effects on protecting value when firms collaborate. I develop new arguments to clarify theoretical understanding about administrative control in strategic alliances, and provide systematic evidence about the prevalence, rationale and influence of specific control mechanisms designed to govern collaborations. In particular, I examine what considerations determine the inclusion of control instruments, that is joint committees and board membership for the partner, in the governance structure of strategic alliances. I also investigate how these control mechanisms safeguard partnering firms against knowledge misappropriation. In the three studies that constitute this dissertation, I find evidence that anticipated monitoring and coordinated adaptation needs drive the structuring of control mechanisms. I also find evidence that control mechanisms have important consequence for knowledge leakage, particularly when the partners ability and incentives to misappropriate increase. These findings have important implications for the design and management of strategic alliances, as well as for the broader stream of research on the governance of hybrid organizational forms. In the first study, I consider the contractual delegation of specific authority to a dedicated structural interface, which can help partners guide their interactions, address contingencies that arise, and mitigate conflict. I argue and show that partners establish steering committees in response to their monitoring and coordinated adaptation needs. Specifically, based on an analysis of the design of nonequity alliances in the biopharmaceutical industry, I find that partners are more likely to employ a steering committee when a collaborator is able to appropriate its technology, technological uncertainty is higher, or the alliance requires significant coordination. I also empirically distinguish administrative control and incentives as the principal dimensions of formal governance supporting adaptation needs in collaborative agreements. The second study examines the consequences of incorporating administrative controls into nonequity collaborations and how such controls affect knowledge transfers between partners. I demonstrate the role of administrative control in affecting knowledge transfer in alliances. By showing the direct knowledge transfer implications of administrative structures in partnerships, this study extends alliance governance research beyond the implications of the equity-nonequity dichotomy to consider the wider gamut of governance instruments. Moreover, this study lends support to the argument that administrative controls are critical for mitigating appropriation hazards in R&D; alliances. In the final study, I examine boards in minority equity partnerships. These partnerships are equity alliances in which one of the partners makes a minority investment (i.e., less than 50 percent ownership) in a partner firm. Investing partners sometimes also secure board seats with voting rights or observational rights. The objective of this research is to analyze the antecedents of board-level monitoring by investors as a facet of formal governance in such partnerships. Drawing on insights from organizational economics, I argue that safeguarding against partner opportunism and protecting the investee\u27s proprietary knowledge determine whether or not an investor secures a seat on the investee partner\u27s board. Finding from analyses of a sample of R&D; collaborations in the biotechnology industry provide supporting evidence on the drivers of board-level monitoring in minority equity partnerships

Marshallian forces and governance externalities: Location effects on contractual safeguards in R&D alliances

We examine the impact of geographic location of alliance activities on the design of safeguards in contracts governing research and development (R&D) partnerships. Joining research on agglomeration and alliance governance, we argue that the Marshallian agglomerative forces at work in a given location produce governance-related externalities that extend beyond productivity-related externalities considered in previous research. We investigate how location characteristics linked to Marshallian forces, such as local knowledge spillovers, R&D rivalry, dense industry employment, and the strength of professional organizations, have an impact on the specification of formal governance mechanisms. In particular, these Marshallian forces have a bearing on formal governance mechanisms that safeguard the execution of the R&D partnership, such as joint administrative interfaces and termination provisions. We analyze R&D partnerships between biotechnology and pharmaceutical firms and find that misappropriation hazards arising from greater knowledge spillovers and R&D competition in the region where R&D activities are located promote the use of these formal governance mechanisms in R&D partnerships. We also find that factors supporting thick interpersonal networks, such as the intensity of sectoral employment and the strength of professional bodies, reduce the use of formal governance mechanisms in R&D partnerships

Institutional differences and arbitration mechanisms in international joint ventures

Managerial summary IJVs are powerful levers for market expansion and access to resources and capabilities. The risks of corrosive disputes caused by conflicting interests or misunderstandings among partners are nonetheless far from being negligible. Our study helps decision makers and managers increase their understanding of the options and remedies available for resolving disputes. We consider three mechanisms in particular: public courts, arbitration, and the board of directors. Findings show that considering the partners' home country legal environments but also the discrepancies between these environments is essential when it comes to giving preference to arbitration over public courts. Findings also suggest that decisions related to internal private ordering (i.e., relying on the JV board of directors) are driven by the exchange characteristics more than by institutional considerations