Real Options, Policy Uncertainty and Stock Market Reactions to International Joint Venture Announcments

Abstract Book of the 19th International Conference on Modern Research in Management, Economics and Accounting

Year: 2026

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Real Options, Policy Uncertainty and Stock Market Reactions to International Joint Venture Announcments

Dr. Shao-chi Chang, Lien Nguyen

ABSTRACT:

This study investigates how policy uncertainty in partner countries affects the value creation in international joint ventures (IJVs). Based on the real option theory, we hypothesize that policy uncertainty will benefit the value creation of IJVs, and test it against a dataset comprising 879 IJVs between U.S. firms and their partners from 25 other countries from 2000 to 2022. The results show that partners’ policy uncertainty is significantly and positively related to the focal firms’ abnormal stock returns surrounding IJV announcements. We also find that the positive relationship between policy uncertainty and abnormal stock returns are stronger when the IJV investments are more irreversible. The findings are robust to alternative asset pricing models, event windows, investment irreversibility measures, and the sample selection bias.

Keywords: Policy Uncertainty; International Joint Ventures; Real Options