The Wealth Effect of International Joint Ventures: The Case of U.S. Investment in China

This study provides direct evidence of the wealth effect of international joint venture announcements on the value of U.S. firms investing in China from 1979 to 1990. Using a sample of 88 announcements, we find statistically significant positive portfolio excess returns at the joint venture announcements. The results lend strong support to the positive-multinational-network hypothesis, which predicts that a firm's value increases when it expands into global markets. Further, shareholders of U.S. firms investing a relatively small amount in the joint ventures gain positive excess returns, while shareholders of those investing a relatively large amount earn insignificant excess returns. The implication is that the wealth gain arises primarily from the value of a collection of real options acquired by the U.S. firms through their investments in China.