Enforcing compliance with accounting rules : A scenario-based approach

Abstract

Due to cross-cultural differences in international joint ventures (IJVs) partners can disagree on many aspects of management, so that conflicts can arise. This study tries to answer the following question: Can control reduce co-management conflicts, and, thus, improve economic performance of IJVs? To achieve this objective I contrast IJVs characterized by high level of cultural differences with high probability of conflicts. I start from consideration of control mechanisms, and, specifically, ownership share, in organizations. Empirical analysis of two sets of Ukrainian IJVs provides suggestions regarding control to eliminate conflicts and improve economic performance in firms in transition economies. Specifically, at early stages of operations, economic performance of IJVs with a Western partner is significantly better when the Western partner owns a dominant ownership share.