Government corruption and foreign stakes in international joint ventures in emerging economies

This paper analyzes the relationship between government corruption and the changes in the equity stake of foreign partners in international joint ventures (IJVs) formed with local firms in emerging Asian economies. This relationship is defined according to transaction cost theory. This relationship is complemented by the introduction of a moderating variable derived from organizational learning theory: the country experience of foreign partners. This article is based on a sample of 171 European firms, which formed IJVs in emerging Asian economies during the year 1996. Using an event history analysis, the evolution of each European equity stake was followed-up from year 1996 to the end of the period at risk on January 2007. From the empirical results presented in this article, some findings have been drawn on the attitudes of foreign firms toward government corruption in emerging Asian economies. First, we showed that the government corruption is significantly related to the likelihood of foreign partners to terminate the IJV. However, the nature of this relationship is differentiated according to the score used to measure government corruption. The relationship is positive when using the Transparency International score and negative with the Political Risk Services score. Second, we put into evidence that the country experience of foreign partners moderates the relationship between government corruption and the changes in the equity stake of foreign partners in IJVs in emerging Asian economies.