Drivers and Outcomes of Long‐term Orientation in Cooperative Relationships

Abstract

We argue in this paper that a buyer may deliberately develop long‐term orientation as a governance mechanism to deal with risks arising from exchange hazards, and to reduce the opportunistic behaviour of a supplier. While the exchange hazards of asset specificity pose a safeguarding problem, those of market uncertainty pose an adaptation problem. We test our model on a sample of 221 procurement partnerships. Our results show that satisfactory prior history of a supplier, asset specificity of the buyer and market uncertainty are all positively related to a buyer's long‐term orientation towards a supplier. Consistent with the idea that asset specificity and market uncertainty pose different governance problems, we find that satisfactory prior history reduces the positive relationship between asset specificity and a buyer's long‐term orientation, but enhances the positive relationship between market uncertainty and a buyer's long‐term orientation. We also find that a buyer's long‐term orientation fully mediates the relationship between satisfactory prior history and a supplier's opportunistic behaviour. Finally, implications on the theory and the practices of relationship governance are discussed.