Internalization of IJVs and institutions

Abstract

An international joint venture, upon termination, is an attractive option for the parent organizations to convert to a wholly-owned subsidiary. Since each parent organization has the option to internalize the joint venture, there is the potential for competition between the firms when this mode change occurs. We study the impact of the institutional environment on the issue of which parent organization is able to internalize the joint venture. Analyzing international joint ventures that were internalized by one of the parent firms in India, we find that, in industries with higher of level of regulation in the host country, the local parent organization is more likely to internalize the joint venture.