– Equity contributions in joint ventures (JVs) formation are crucial and how firms decide to contribute its equity less has been explored. Based on the equity theory, the purpose of this paper is to argue that the perceived benefits-to-cost (B/C) ratio of their partners determines the level of contribution made by a focal firm. This study then argues that business relatedness, number of partners, and learning orientation in JVs are the determinants. The conditions that explain the moderating effects of business relatedness and number of partners on the likelihood of an equity contribution are also discussed.
– In total, 853 high tech industry ventures in USA spanning from 1995 to 2008 are used to test the developed hypotheses.
– A firm tends to employ disproportional equity contributions when their business highly related with its partners, which is similar to high number of partners dues to low B/C ratio. On the other hand, exploration JVs leads firms to employ proportional equity contributions. Further, this study shows that exploration learning positively moderates the effect of business relatedness on the likelihood of proportional equity contribution.
– This study extends the equity theory by integrating the logic of resource-based view and organizational learning into the formation of JVs.
