INFORMATION ASYMMETRY, ADVERSE SELECTION AND JOINT-VENTURES - THEORY AND EVIDENCE

We propose that intermediate forms of organization like joint-ventures are superior to markets and hierarchies when the costs of valuing complementary assets are non-trivial. By allowing piecemeal transactions under shared ownership and control, joint-ventures can reduce these costs significantly. Our theory is supported by the results of a cross-sectional analysis of the abnormal returns to the parent firms in 64 joint-venture announcements and 165 merger announcements.