Market orientation heterogeneity and new joint venture formation announcements: creating value for parent firms

Abstract

PurposeJoint ventures (JVs) are known to create value for their parent firms, in part due to the mutually beneficial sharing of information that occurs at the JV level. Market orientation (MO) is a well-documented strategic orientation that has received little attention in the JV literature, despite considerable research suggesting that MO has a positive effect on performance. This study posits that the MO skills contributed to a new JV by parent firms are likely to play a central role in a shareholder's assessment of the potential for success of a newly announced JV, thereby triggering changes in market value for parent firms.Design/methodology/approachComputer-Assisted-Text-Analysis (CATA) is used to calculate MO heterogeneity from annual reports, and event-study methodology is used to assess parent firm performance. The authors rely on a US sample of 82 public JV parents involved in 41 new equally-weighted JV formation announcements.FindingsThe authors find that heterogeneity on MO's behavioral components (customer orientation, competitor orientation, and coordination) is negatively related to parent performance, while heterogeneity on MO's profitability component is positively related to parent performance. However, the effect of MO's long-term focus heterogeneity on parent performance was not supported.Originality/valueThe results suggest that the benefits of information sharing in partnerships may be of a nuanced nature when it comes to MO. Although heterogeneity in profitability inclination created value for parent firms announcing a new JV; heterogeneity in customer, competitor and coordination market orientations did not appear to be rewarded by shareholders.

Market orientation and firm performance: can there be too much of a good thing?

“…Managers could monitor market reactions to MO in a longitudinal manner, as is done in this study, as well as after corporate communications or announcements (e.g. Jancenelle et al , 2020). By monitoring market reactions to MO, managers may learn which specific level of MO is viewed by shareholders as having the greatest effect on future cashflows.…”

“…Indeed, extant research has suggested that profit orientation is only found to be positively related to three out of five performance variables (Kumar et al, 1998). Similarly, long-term focus was not found to improve performance in the joint-venture context (Jancenelle et al, 2020). These prior findings are incongruoussince they do not suggest a positive linear relationship between MO's components and firm performance, contrary to what prior research has usually contended (Kirca et al, 2005) and may be indicative of intricacies not directly addressable by the development simple linear relationship hypotheses (Haans et al, 2016).…”

“…Fourth, the long-term focus decision-based component of MO has been found to positively relate to the pursuit of successful business strategies (Kumar et al , 2002), congruent with prior research highlighting the positive effect of long-termism on value creation (Flammer and Bansal, 2017). Fifth, the profitability focus decision-based dimension of MO has been suggested to positively relate to revenue growth, return on capital and new service success (Kumar et al , 1998); and is also known to positively influence joint-venture performance (Jancenelle et al , 2020). Lastly, and in line with the observations just noted for each individual component of MO, we note that the construct taken as a whole in its commonly used summated form has been shown to positively impact firm performance (e.g.…”

Export-Related Dynamic Capabilities and Export Success: Absorptive Capacity Moderated Mediating Effect of Ambidexterity

“…European Journal of Theoretical and Applied Sciences, 1(4), 1031-1055. DOI: 10.59324/ejtas.2023.1(4).98 knowledge is processed to realize firm activities (Li, 2004;Teece, 2007;Jancenelle, 2020;Keen and Wu, 2011;Das and Teng, 2000;Miocevic, 2021;Hoque et al, 2022).…”