JOINT VENTURES AND THE OPTION TO EXPAND AND ACQUIRE

This article develops the perspective that joint ventures are created as real options to expand in response to future technological and market developments. The exercise of the option is accompanied by an acquisition of the venture. It is hypothesized that the timing of the acquisition should be triggered by a product market signal indicating an increase in the venture's valuation. Based on a sample of 92 manufacturing joint ventures, this hypothesis is tested by estimating the effect of product market signals on the hazard of acquisition. The results indicate that unexpected growth in the product market increases the likelihood of acquisition: unexpected shortfalls in product shipments have no effect on the likelihood of dissolution. This asymmetry in the results strongly supports the interpretation of joint ventures as options to expand.