– Although IJVs can be terminated in multiple ways, there are three common termination modes (TM) that parent firms usually use: acquisition where they buy out the partner's shares to reach 100% ownership; liquidation involving the closing down of the IJV; and sell-off which means selling the shares to partners or third parties, says Roman Filenko, who will defend his dissertation on 8 December 2023.
Determinants influence the choice of termination modes differently
In his dissertation, Filenko draws a direct link between the determinant, the motives behind forming IJVs, and the choice of termination mode. The results show that parent firms usually choose to liquidate their IJVs when there is a significant inter-partner conflict within the subsidiary's management or when the IJV's profit margin is low. In addition, the decision to use the liquidation TM is more likely in countries with high political instability and weak protection of intellectual property rights.
The findings also reveal how equal ownership between partners influences the decision to sell the unit to a local partner. Furthermore, the dissertation reports that the motive behind IJV formation has an impact on choosing the acquisition TM. In fact, this influence is supported for IJV formation motives related to market, efficiency, and strategic asset seeking.
In addition, the choice of acquisition TM is often influenced by reduced national cultural distance and the majority ownership position of the parent firm. Moreover, the maturity and high performance of IJVs increase the chances of choosing the acquisition TM.
According to Roman Filenko, parent firms should try to predict the likelihood of a certain TM already at the formation of IJVs. They will then be able to build long-term investment plans based on this knowledge.
The impact of termination modes on parent firms
Filenko challenges the common belief that termination alone decreases or increases the financial value of the parent company. His research shows that the choice of TM on its own does not have a significant impact on the value of the parent firm.
However, when looking at the data separately for conditions related to host countries, a significant influence on value appears. For example, divesting from IJVs in countries with high political risk can enhance the value of parent firms due to leaving an unsafe environment and cutting transaction costs.
On the other hand, divesting from host countries with strong intellectual property rights protection can decrease the financial value of the parent firms. This effect is due to the decision to leave a market where firms have favourable conditions for research and development.
– Managers can benefit from the findings of this dissertation as they help in forecasting how the termination of an IJV might impact the financial value of the parent firm. Additionally, the research highlights the need to consider the market conditions in the host country when choosing an IJV TM, says Filenko.
In his dissertation, Filenko used data on 105 IJVs headquartered in the Nordic countries (i.e. Denmark, Finland, Norway, and Sweden) that were terminated between 2000 and 2020. The companies were reviewed in 2022.
Filenko, Roman (2023) Determinants of International Joint Ventures Termination Mode Choice and Parent Firms’ Value Creation. Acta Wasaensia 526. Doctoral dissertation. Vaasan yliopisto. / University of Vaasa.
The public examination of M.Sc. Roman Filenko’s doctoral dissertation "Determinants of International Joint Ventures Termination Mode Choice and Parent Firms’ Value Creation" will be held on Friday 8 December 2023 at noon at the University of Vaasa.
The defence will be organised online: (Zoom, password 874426)
Professor Desislava Dikova (Vienna University) will act as an opponent and Professor Peter Gabrielsson as a custos.
Roman Filenko was born in Saint Petersburg, Russia. He received his bachelor’s degree in 2017 from Lapland University of Applied Science. Filenko completed the degree of Master of Science in Economics and Business Administration majoring in Strategic Business Development in 2018 at the University of Vaasa. At the moment, Filenko works as a doctoral researcher in the School of Marketing and Communication at the University of Vaasa.