Renegotiation of joint venture contracts: The influence of boards of directors and prior ties as alternative governance mechanisms

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Abstract

Research on alliance governance has pointed out that joint ventures (JVs) are particularly complex forms of collaboration. Partnering firms therefore often face difficulties in anticipating contingencies and collaborative behaviors at the contract negotiation stage. When initial JV contracts are incomplete, renegotiation represents a key strategic opportunity for enhancing contractual safeguards or coordination guidelines over the course of the joint venture. Costs and risks entailed by renegotiating JV arrangements at a later stage are far from trivial, however. Existing research on alliances suggests that practitioners have alternative relational and formal governance solutions at their disposal for handling possible inefficiencies caused by contractual gaps over time. Although insightful, this research does not enable a determination as to whether these alternative relational and formal mechanisms substitute for or facilitate ex post contractual renegotiation. The competing arguments found in the literature provide little guidance to JV practitioners as well. Our results show that the collaborative context within which the JV is embedded (i.e., prior inter-partner ties) obviates the need for enhancing incomplete JV contracts ex post. By contrast, ex post contractual adjustments are fostered and facilitated by the formal and administrative apparatus engaged over the course of the JV (i.e., an involved JV board of directors). Such opposing effects suggest that prior ties can “prevent” the occurrence of inefficiencies caused by contractual gaps, while an involved JV board primarily can act as a mediation and renegotiation platform to “repair” the exchange when inefficiencies occur. Our findings highlight the multidimensional nature of joint venture governance, and in particular the interplay among various formal and informal governance solutions in the execution of joint ventures. By unpacking their complex effects on the decision to renegotiate incomplete JV contracts, our study also holds important value for managers seeking to govern their JVs over time.

Original languageEnglish
Pages (from-to)1-19
Number of pages19
JournalLong Range Planning
DOIs
Publication statusAccepted/In press - 25 Oct 2018

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board of directors
joint venture
governance
contract
Joint ventures
Board of directors
Renegotiation
Governance mechanisms
contingency
repair
mediation

Keywords

  • Board of directors
  • Incomplete contracts
  • Joint venture
  • Prior ties
  • Renegotiation

Cite this

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title = "Renegotiation of joint venture contracts: The influence of boards of directors and prior ties as alternative governance mechanisms",
abstract = "Research on alliance governance has pointed out that joint ventures (JVs) are particularly complex forms of collaboration. Partnering firms therefore often face difficulties in anticipating contingencies and collaborative behaviors at the contract negotiation stage. When initial JV contracts are incomplete, renegotiation represents a key strategic opportunity for enhancing contractual safeguards or coordination guidelines over the course of the joint venture. Costs and risks entailed by renegotiating JV arrangements at a later stage are far from trivial, however. Existing research on alliances suggests that practitioners have alternative relational and formal governance solutions at their disposal for handling possible inefficiencies caused by contractual gaps over time. Although insightful, this research does not enable a determination as to whether these alternative relational and formal mechanisms substitute for or facilitate ex post contractual renegotiation. The competing arguments found in the literature provide little guidance to JV practitioners as well. Our results show that the collaborative context within which the JV is embedded (i.e., prior inter-partner ties) obviates the need for enhancing incomplete JV contracts ex post. By contrast, ex post contractual adjustments are fostered and facilitated by the formal and administrative apparatus engaged over the course of the JV (i.e., an involved JV board of directors). Such opposing effects suggest that prior ties can “prevent” the occurrence of inefficiencies caused by contractual gaps, while an involved JV board primarily can act as a mediation and renegotiation platform to “repair” the exchange when inefficiencies occur. Our findings highlight the multidimensional nature of joint venture governance, and in particular the interplay among various formal and informal governance solutions in the execution of joint ventures. By unpacking their complex effects on the decision to renegotiate incomplete JV contracts, our study also holds important value for managers seeking to govern their JVs over time.",
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AU - Duplat, Valérie

AU - Klijn, Elko

AU - Reuer, Jeffrey

AU - Dekker, Henri

PY - 2018/10/25

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N2 - Research on alliance governance has pointed out that joint ventures (JVs) are particularly complex forms of collaboration. Partnering firms therefore often face difficulties in anticipating contingencies and collaborative behaviors at the contract negotiation stage. When initial JV contracts are incomplete, renegotiation represents a key strategic opportunity for enhancing contractual safeguards or coordination guidelines over the course of the joint venture. Costs and risks entailed by renegotiating JV arrangements at a later stage are far from trivial, however. Existing research on alliances suggests that practitioners have alternative relational and formal governance solutions at their disposal for handling possible inefficiencies caused by contractual gaps over time. Although insightful, this research does not enable a determination as to whether these alternative relational and formal mechanisms substitute for or facilitate ex post contractual renegotiation. The competing arguments found in the literature provide little guidance to JV practitioners as well. Our results show that the collaborative context within which the JV is embedded (i.e., prior inter-partner ties) obviates the need for enhancing incomplete JV contracts ex post. By contrast, ex post contractual adjustments are fostered and facilitated by the formal and administrative apparatus engaged over the course of the JV (i.e., an involved JV board of directors). Such opposing effects suggest that prior ties can “prevent” the occurrence of inefficiencies caused by contractual gaps, while an involved JV board primarily can act as a mediation and renegotiation platform to “repair” the exchange when inefficiencies occur. Our findings highlight the multidimensional nature of joint venture governance, and in particular the interplay among various formal and informal governance solutions in the execution of joint ventures. By unpacking their complex effects on the decision to renegotiate incomplete JV contracts, our study also holds important value for managers seeking to govern their JVs over time.

AB - Research on alliance governance has pointed out that joint ventures (JVs) are particularly complex forms of collaboration. Partnering firms therefore often face difficulties in anticipating contingencies and collaborative behaviors at the contract negotiation stage. When initial JV contracts are incomplete, renegotiation represents a key strategic opportunity for enhancing contractual safeguards or coordination guidelines over the course of the joint venture. Costs and risks entailed by renegotiating JV arrangements at a later stage are far from trivial, however. Existing research on alliances suggests that practitioners have alternative relational and formal governance solutions at their disposal for handling possible inefficiencies caused by contractual gaps over time. Although insightful, this research does not enable a determination as to whether these alternative relational and formal mechanisms substitute for or facilitate ex post contractual renegotiation. The competing arguments found in the literature provide little guidance to JV practitioners as well. Our results show that the collaborative context within which the JV is embedded (i.e., prior inter-partner ties) obviates the need for enhancing incomplete JV contracts ex post. By contrast, ex post contractual adjustments are fostered and facilitated by the formal and administrative apparatus engaged over the course of the JV (i.e., an involved JV board of directors). Such opposing effects suggest that prior ties can “prevent” the occurrence of inefficiencies caused by contractual gaps, while an involved JV board primarily can act as a mediation and renegotiation platform to “repair” the exchange when inefficiencies occur. Our findings highlight the multidimensional nature of joint venture governance, and in particular the interplay among various formal and informal governance solutions in the execution of joint ventures. By unpacking their complex effects on the decision to renegotiate incomplete JV contracts, our study also holds important value for managers seeking to govern their JVs over time.

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