International Joint Venture under Asymmetric Information: Technology vis-à-vis Information Advantage
Abstract
We study the relationship between a multinational corporation (MNC) and a domestic firm under demand uncertainty. The MNC possesses a superior production technology, but the domestic firm is better at predicting market demand. We examine how the MNC’s preference for, and the ownership structure of, a joint venture depend on the credit market, demand uncertainty, the domestic firm’s ability to gather demand information, the MNC’s technology advantage, and the efficiency of technology transfer. We also consider a dynamic setting with technology spillover and show that whether technology spillover hinders or facilitates joint venture depends on the nature of the credit market.
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