The Impact of Laws, Regulations, and Culture on Cross-border Joint Ventures



Date of this version


Document Type



Cross-border joint ventures; Cross-border mergers and acquisitions; Legal systems; Culture


Both formal (legal) and informal (culture, language, religion) institutions determine the intensity of cross-border joint ventures between one US and one foreign partner. Using a sample of cross-border joint ventures from 105 countries, we investigate the impact of country legal, cultural and business environment factors, industry factors as well as deal specific factors on the intensity of cross-border joint ventures with one US partner. Our results suggest that US firms are more likely to form joint ventures with firms from countries with weaker legal and regulatory environments and with higher cultural, language, and religious disparity from the US. However, compared to mergers between a foreign target and a US bidder, US firms are more likely to form joint ventures with firms from countries with strong laws and regulations, as well as with smaller cultural, language, and religious differences from the US. These findings are consistent with cross-border joint ventures being a “hybrid” organizational form existing in between free-market contracts and firm-like deals such as mergers and acquisitions. Our results further suggest that foreign countries receiving large US foreign direct investments and/or relying less on export and import are associated with higher intensity of cross-border joint ventures. The volume of cross-border joint ventures with US partner is higher for firm from less competitive and/or more politically stable countries. On a firm level, US firms are more likely to form cross-border joint ventures in cases of technology transfers between the joint venture partners, in deals involving partners from unrelated industries or with foreign firms not cross-listed in the US. Overall, the results suggest that cross-border joint ventures are optimal, low cost organizational form mitigating information asymmetries, hold-up costs, and poor contract enforceability, especially in environment with larger market imperfections.



Published in

Journal of International Financial Markets, Institutions and Money

Citation/Other Information

22, 774-795