We examine whether forming a joint venture creates more or less value relative to establishing a wholly owned subsidiary. Using a unique dataset of 1567 Taiwanese listed firms (19,090 firm-years) from 2000 to 2016, we find geographical diversification to mainland China results in valuation discounts, which is attributed to overall investments, wholly owned subsidiaries, and joint ventures. Further, we provide evidence that firms forming joint ventures generate less firm value than firms creating wholly owned subsidiaries in mainland China. This finding could be a potential explanation for why Taiwanese listed firms are increasingly choosing the wholly owned subsidiary mode to invest in firms in mainland China.
