The value from acquiring and divesting a joint venture: a real options approach

What is it about?

This paper shows that stock markets do not penalize firms when they terminate a joint venture by acquiring it from the partner, or as a mirror image, by divesting it to the partner. Theoretically the paper reaffirms the principle that joint ventures act as real options and provide firms with valuable flexibility as they enter new markets.

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Why is it important?

For managers, it confirms the idea that joint ventures can be used to explore uncertain markets at relatively low costs. The papers findings also imply that terminating a joint venture sometimes makes sense and is a decision that should not be viewed with trepidation.