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Our central proposition is that monitoring costs increase with physical distance, and hence, direct investments located further from the foreign investor’s home base should be more likely formed as joint ventures. Tests on a data set of Taiwanese direct investments in Mainland China provide robust support to the hypothesis. A project that was located 1000 kilometers further away was 13-17% more likely to be formed as a joint venture.

Opportunistic behavior can be resolved through contract or by adjusting the structure of ownership. Previous scholarship has focussed on economic factors that influence the trade-off between contract and ownership. We focus on the effect of a cultural factor -- kinship -- and hypothesize that the presence of kinship ties leads to a relative preference for contract over ownership as the way to resolve opportunistic behavior. This hypothesis is tested on a data set of Taiwanese direct investments in Mainland China. The results provide fairly strong support to the hypothesis.