Governance Choice in Dyadic Relationships and Performance - A Transaction-Cost Theory Meta-Analysis

Abstract

The choice of optimal governance structure to control an exchange relationship is most critical for the success of organisations. Yet, scholars debate what constitutes optimal governance, and specifically how the core governance constructs of transaction-cost theory (TCT) – market, hierarchy and hybrid – relate to a broader notion of governance that includes various mechanisms like contractual or procedural coordination. Following calls for a more fine-grained analysis of governance structure, we test the predictions of TCT with a novel model that consists of governance modes and governance mechanisms as distinct, yet complementary control instruments to jointly structure transactions in dyadic exchange relationships. To illustrate the distinct performance-effects of governance choice, we meta-analytically synthesise 198 samples from different streams of management literature containing 54,734 dyadic inter- and intra-organisational organisational relationships between 1960 and 2014. Our evidence shows that governance mechanisms are generally positively related to performance, yet substantially influenced by moderating-effects – both by specific transaction-cost conditions and the governance mode the transaction is embedded in. As predicted, we find that governance mechanisms work especially well for market-based governance, compared to hierarchies or hybrids. Specifically, our results show that for transactions that occur under conditions of governance “voids” – i.e. when relationships are governed by insufficiently integrated modes according to predictions of TCT – governance mechanisms work particularly well to control the exchange. With our findings we contribute to transaction-cost theory and the broader literature on organisational controls and governance decisions.