Renegotiation of Joint Venture Contracts: the Influence of Alternative Governance Mechanisms

Abstract: Research on the governance of joint ventures has pointed out the difficulties associated with anticipating behaviors and contingencies at the outset of a collaboration. When initial contracts are inherently incomplete, renegotiation represents a strategic opportunity for enhancing contractual safeguards or coordination guidelines. Costs and risks entailed by renegotiating joint venture arrangements are far from trivial however. In accordance with our theoretical arguments, analysis of survey data shows that partners’ decision to renegotiate incomplete joint venture contracts is moderated by their reliance on alternative relational and formal governance solutions. More particularly, results reveal that prior ties between partners (i.e., relational governance) obviate the need for enhancing safeguards ex post. By contrast, such ex post adjustment is facilitated by an involved board of directors (i.e., formal governance). Our findings highlight the multidimensional nature of joint venture governance, and the interrelations between governance elements in the execution and dynamics of joint ventures.