Choice Of Governance Structure Research Articles

Firm's Choice of Regulatory Instruments to Reduce Pollution: A Transaction Cost Approach

This paper extends transaction costs economics to analyze relationships between firms and regulatory agencies. It compares the economic efficiency of firm-agency governance structures for dealing with pollution reduction. The transaction costs of three ideal type governance structures are analyzed: command and control regulation, market based mechanisms, and negotiated agreements. We propose that the choice of governance structure will depend on the strategies firms are pursuing given their transaction attributes and market opportunities.

Food Franchising and Backward Coordination: An Empirical Analysis of Brazilian Firms

Franchising is an important trend in business contracting, and it plays a special role in the food sector. The function of franchising as a governance structure of the transactions between franchisor and franchisee (forward coordination) is well known. This paper, in contrast, investigates the backward coordination brought about by food franchising. The main hypothesis is that the choice of governance structure depends on the quality strategy adopted by franchisors. This occurs because, under certain conditions, quality strategies imply higher asset specificity or greater uncertainty. As a consequence, quality strategies may lead companies to adopt hybrid forms (or even vertical integration) rather than spot markets. In order to test this hypothesis, this paper presents a discrete structural analysis of six cases of franchising in the Brazilian market, specifically four coffee shop chains and two fast-food chains. The main TCE predictions are confirmed: higher asset specificity and greater uncertainty are associated with governance structures that provide more control. Some of the results, however, are better explained by historical aspects (path dependence).

Corporate Control and Capital Structure Decisions Considering Unobserved Heterogeneity

This study analyzes the relation between firms’ corporate governance structure and capital structure choice. Different methodologies are applied: ordinary least squares regressions with time-effects (OLS), OLS with both time and industry effects and panel data techniques. The results suggest that unobserved heterogeneity does have an influence and consequently, coefficients obtained when using a panel data approach are more reliable than the ones obtained using pooled data. For large levels of managerial ownership, increases in this variable lead to higher debt levels, while large boards favor managerial entrenchment, leading to lower levels of leverage.

DETERMINANTS OF GOVERNANCE STRUCTURE IN ALLIANCES: THE ROLE OF TASK, STRATEGIC, AND PARTNER UNCERTAINTIES.

This study proposes and empirically supports a view of the choice of governance structure in alliances as driven by the uncertainty stemming from the strategic goals and task characteristics of the collaboration, rather than by the reduction of partner uncertainty through trust created by repeated interaction.

Exposing strategic assets to create new competencies: the case of technological acquisition in the waste management industry in Europe and North America

This paper presents a model that complements the research stream of transaction cost economics with the dynamic capabilities approach. The paper shows that, even though technological alliances involving specific assets deployed in emerging industries are exposed to high transaction costs, they possess attributes that make them attractive. First, they facilitate the creation of tacit competencies, and second, they reduce the uncertainty arising from technological innovation and regulatory changes. The model is empirically tested in the hazardous waste management industry by using primary data collected through the use of questionnaires. The method links governance structure choices to managers' perceptions of the uncertainty surrounding the acquisition of technology.

Buyer-Supplier Relations in Industrial Markets: When Do Buyers Risk Making Idiosyncratic Investments?

It is well established that the existence of investments specific to a relationship influences the choice of governance structure, including the use of contractual safeguards. What is less well understood are the circumstances leading to the creation of those specific assets to begin with. This paper explores the industrial buyer's motives to put itself at risk by making investments, tangible and intangible, which cannot be readily redeployed from one supplier to another. Using original data from a sample of 388 supply relationships involving all automakers in the U.S. and Japan, we examine features of the supply task, the supplier, and the supply environment which serve as motives to make supplier-specific investments. We also examine potential factors which facilitate the posting of specific assets as “credible commitments” to attenuate supplier opportunism. We find that specific investments by buyers serve as a mechanism to 1) increase coordination when the manufacturing task is complex, 2) buffer the buyer against technological uncertainty, and 3) build close relationships when the requisite production skills are scarce (the supply market is thin). We find more specific investments in supply arrangements that are embedded in a broader business relationship. We find fewer supplier-specific investments in the Japanese context. Finally, we find that buyers focus their investments on lesser-known, low-share component makers, perhaps to capitalize on a unique, focused supplier capability.

Alliances and networks

This paper introduces a social network perspective to the study of strategic alliances. It extends prior research, which has primarily considered alliances as dyadic exchanges and paid less attention to the fact that key precursors, processes, and outcomes associated with alliances can be defined and shaped in important ways by the social networks within which most firms are embedded. It identifies five key issues for the study of alliances: (1) the formation of alliances, (2) the choice of governance structure, (3) the dynamic evolution of alliances, (4) the performance of alliances, and (5) the performance consequences for firms entering alliances. For each of these issues, this paper outlines some of the current research and debates at the firm and dyad level and then discusses some of the new and important insights that result from introducing a network perspective. It highlights current network research on alliances and suggests an agenda for future research.© 1998 John Wiley & Sons, Ltd.

Une approche conceptuelle des relations fournisseurs-distributeurs

A new institutional economic approach to analyzing supplier-retailer relationships : the case of wine, counterseason fruit and dairy products. Supplier-retailer relationships in the food industry vary markedly from one subsector to another. This paper aims to explain the diversity in governance structures encountered in three sectors of food products (dairy products, wine and counterseason fruit), with a model grounded in the New Institutional Economics. The model emphasizes consumers' preferences and information issues, which play a key role in the supplier-retailer transactions environment. The basic NIE model is specified and applied to the French retail food industry, using the three products mentioned above. In this context, we use the model to explore in more detail the factors that play a key role in NIE analysis (uncertainty, asset specificity), discuss what the appropriate unit of analysis should be, and analyze the principles guiding the choice of governance structures. This application also allows us to incorporate into the model the critical importance of quality conventions and of technical progress in dealing with information to the choice of specific assets and governance structures in the different subsectors. The paper is primarily programmatic.

Hybrid governance: the role of transaction costs, production costs and strategic considerations

Practitioners often are confused by theories that offer ambiguous prescriptions for designing the institutional forms or governance structures in which business activities are conducted. Unclear prescriptions for organizing tasks within the main governance alternatives leave key design decisions unguided: which tasks to perform in‐house (hierarchy), which to contract to outside agencies (market), and which to perform jointly by economic units within and outside the firm (hybrid)? A popular current theory ‐ transaction cost analysis ‐ suggests that governance structures should be aligned to tasks in a “mainly transaction cost economizing way.” Argues that the importance of transaction costs is overstated, and that observed patterns of firms’ governance structures suggest that firms also account for other theoretical issues ‐ production costs and strategic considerations ‐ in determining efficient boundaries. Begins by illustrating that transaction costs are not always primary. Then discusses the factors that impact production costs and transaction costs, and reviews certain strategic considerations that impact the choice of governance structure for a task. Offers practitioners guidance in choosing governance structures through a contingency analysis that examines the interaction of production costs, transaction costs, and strategic considerations. Illustrates normative implications for designing governance structures through corporate examples that are driven by both cost and strategy considerations.

Does Familiarity Breed Trust? The Implications of Repeated Ties for Contractual Choice in Alliances

Exploring the factors that explain the choice of governance structures in interfirm alliances, this study challenges the use of a singular emphasis on transaction costs. Such an approach erroneously treats each transaction as independent and ignores the role of interfirm trust that emerges from repeated alliances between the same partners. Comprehensive multiindustry data on alliances made between 1970 and 1989 support the importance of such trust. Although support emerged for the transaction cost claim that alliances that encompass shared research and development are likely to be equity based, there is also strong evidence that repeated alliances between two partners are less likely than other alliances to be organized using equity.

DOES FAMILIARITY BREED TRUST? THE IMPLICATIONS OF REPEATED TIES FOR CONTRACTUAL CHOICE IN ALLIANCES.

Exploring the factors that explain the choice of governance structures in interfirm alliances, this study challenges the use of a singular emphasis on transaction costs. Such an approach erroneously treats each transaction as independent and ignores the role of interfirm trust that emerges from repeated alliances between the same partners. Comprehensive multiindustry data on alliances made between 1970 and 1989 support the importance of such trust. Although support emerged for the transaction cost claim that alliances that encompass shared research and development are likely to be equity based, there is also strong evidence that repeated alliances between two partners are less likely than other alliances to be organized using equity.

The role of asset specificity in the vertical integration decision

According to the logic of transaction cost economics, several factors determine the most efficient form of economic organization. These factors include uncertainty and frequency of transactions involving the transfer of goods or services, although the most important factor is asset specificity. These characteristics of transactions engender high transaction costs, but they also parallel the conditions under which the sunk cost effect is most likely to be observed. The potential influence of sunk cost considerations in the choice of corporate governance structure is illustrated with respect to vertical integration, and was tested in a laboratory study in which subjects were asked to play the role of a firm's chief strategist. The results support the view that asset specificity drives vertical integration, but for reasons that may have little to do with transaction cost economizing.

Does hierarchical governance facilitate adaptation to changed circumstances?: Some formal examples

The transaction-cost theory of economic organization maintains that by merging and adopting a hierarchical governance structure, two firms can circumvent the bargaining problem which would impede adaptation to changing circumstances if they remained independent. I analyze this claim in a simple model which allows the costs of hierarchical organization (imperfect selective intervention) to be evaluated alongside the costs due to the bargaining problem (delays and disagreement). Both costs are due to informational asymmetries which are assumed to be unaffected by the choice of governance structure. Examples are presented which support the fundamental transaction-cost proposition that hierarchical governance is preferred when parties are highly interspecific and there are significant gaps in the contract. The intuition is that rational bargainers make less attractive offers in precisely those circumstances where adaptation is likely to be extremely valuable. Integration effectively separates the decision to adapt from the division of the resulting surplus, and so is relatively efficient when substantial quasi-rents are at stake.