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RFS Advance Access published online on June 23, 2006
Review of Financial Studies, doi:10.1093/rfs/hhl007
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© The Author 2006. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org

Article

The Role of Knowhow Acquisition in the Formation and Duration of Joint Ventures

Michel A. Habib 1 * and Pierre Mella-Barral 2
1 Swiss Banking Institute, University of Zurich, Plattenstrasse 14, 8032 Zurich, Switzerland
2 HEC School of Management Paris, Department of Finance and Economics, F-78351 Jouy-en-Josas Cedex, France

* To whom correspondence should be addressed.
Michel A. Habib, E-mail: habib{at}isb.unizh.ch


  Abstract

We analyze the role of knowhow acquisition in the formation and duration of joint ventures. Two parties become partners in a joint venture in order to benefit from each other's knowhow. Joint operations provide each party with the opportunity to acquire part of its partner's knowhow. A party's increased knowhow provides the impetus for the dissolution of the joint venture. We characterize the conditions under which dissolution takes place, identify the party that buys out its partner, determine the time to dissolution, establish its comparative statics, and examine the implications of knowledge acquisition for the desirability of joint venture formation.

Keywords: Joint Ventures, Knowhow Acquisition, Optimal Dissolution Time, Continuous-Time Corporate Finance.
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